SBI Mutual Fund has recently launched the SBI Nifty 500 Index Fund, providing a unique opportunity for investors to invest in the top 500 companies listed on the National Stock Exchange (NSE). These companies are chosen based on their market capitalization, meaning the fund offers exposure across large-cap, mid-cap, and small-cap stocks. For first-time investors looking to diversify their portfolios, this fund seems appealing, but should they jump in?
How Does the SBI Nifty 500 Index Fund Work?
The SBI Nifty 500 Index Fund tracks the Nifty 500 Index, which covers nearly 92% of the total market capitalization of all companies listed on the NSE. This index consists of stocks from 21 different sectors, offering a broad range of opportunities for investors. Financials dominate the index, holding 27.60% weightage, followed by IT with 9.90% weightage and oil, gas, and consumables with 8.75% weightage. Other key sectors include auto and FMCG.
Some of the top companies in the fund include HDFC Bank, with a 6.41% weightage, and Reliance Industries at 5.31%, alongside well-known names like ICICI Bank, Infosys, and ITC.
Comparison with Other Nifty 500 Index Funds
While SBI’s fund is new, it’s not the first of its kind. Motilal Oswal launched its Nifty 500 Index Fund five years ago, and Axis Mutual Fund recently launched the Axis Nifty 500 Index Fund. Motilal Oswal’s fund has been a strong performer, delivering a 35.29% return in one year, 16.73% in three years, and 21.84% in five years. The fund’s portfolio is 74.5% large-cap, 16.6% mid-cap, and 8.9% small-cap stocks, showcasing a balanced investment across different market segments.
Why Experts Recommend Broad Portfolio Index Funds for New Investors
Experts agree that index funds with broad exposure like the SBI Nifty 500 Index Fund can be beneficial for new investors. In times of market volatility, these funds tend to perform more stably, as they are diversified across sectors and stock sizes. Deepak Chhabria, CEO of Axion Financial Services, points out that in downturns, some sectors and stocks remain steady, which helps reduce the overall impact of market declines. For new investors, this can be a safer bet compared to more concentrated funds.
The Importance of Large-Cap Stocks and Sector Weightage
While the SBI Nifty 500 Index includes stocks from all market caps, the majority of its weight is on large-cap stocks, which are generally more stable. However, this can also mean that some sectors, like financials, carry a heavier weight, which could affect performance based on how those sectors perform in the market.
Experts recommend that investors should carefully consider their investment goals and risk tolerance before deciding to invest in such funds. While index funds like the SBI Nifty 500 are appealing for diversification, it’s important to ensure it align with your financial strategy.
