There has always been an affinity for automobiles and high-end vehicles, thus, explaining the rising in auto sales in both India and abroad every year.
To tap the potential of the growing auto sector, ICICI Prudential Mutual Fund launched India’s first auto index fund, the ICICI Prudential Nifty Auto Index Fund.
It is an open-ended index scheme replicating Nifty Auto Index. The new fund offer was launched on September 22 and will remain open till October 6, 2022.
The benchmark for this fund scheme will be Nifty Auto TRI. The fund managers of the scheme will be Kayzad Eghlim and Nishit Patel.
READ MORE: How to make the most of investment in sectoral funds?
The objective of the scheme is to invest in companies whose securities are included in the Nifty Auto Index and subject to tracking errors to endeavour to achieve the returns of the above index.
This would be done by investing in all the stocks comprising the Nifty Auto Index in the same weightage that they represent in the Nifty Auto Index. However, there is no assurance or guarantee that the investment objective of the scheme shall be achieved, as per AMC.
Like other indices marked to trace the movement of a particular sector, the Nifty Auto Index will track the movement of the automobile sector. This means that the performance of this index will depend on the performance of this sector.
The index includes 15 listed companies apart from the auto-related sectors such as auto ancillaries and tyres too. It is made using the free float market capitalization method.
As per a press release shared by the fund house, no single stock will assume more than 33 per cent weight. This means that the total weight of the top three stocks taken together will be less than 62 per cent. Like all other indices, the portfolio turnover ratio is low considering how this index will be rebalanced only twice every year during March and September.
During the NFO period the minimum application amount would be ₹1000, and in multiples of ₹1 thereafter.
READ MORE: Does your mutual fund portfolio need Sectoral and Thematic Funds?
What are sectoral funds?
Sectoral themes are cyclical, which means that you cannot rely on their performance the entire year. They perform in cycles, which means that investors earn good returns from them only when this sector is on a high. However, consumer confidence is high given the high performance of the automobile sector and its affiliated sectors.
Automobile sales statistics reveal automobile sales trends over a period. While export trends are going up every year, domestic sales of automobiles have gone down similarly. Given the current geopolitical situation and consequent recession, the economies of both Europe and America are both going downhill, thus, raising concerns about the future of automobile sales outside India.
The escalating animosity between Russia and Ukraine and the probability of full-fledged tension between America and North Korea are telltale signs of a not-so-glorious run for the automobile sector in the near future. However, the good news is that India might be able to brush aside fears of recession given its robust economic policies and its continued focus on pushing the manufacturing sector.
With more companies and industries entering the country to do business, the per capita income has greatly increased. This has increased the affordability of most Indians who are more likely to buy their choice of vehicles. As income levels rise, environment-conscious millennials are inclined to spend more on electric vehicles, thus lending a natural boost to this sector again.
Also, many personal finance analysts opine against parking funds in sectoral themes considering the high risk versus returns involved apart from the cyclical nature of earnings, thus, forcing many investors to stay invested for roughly 25-30 years in these kinds of funds to earn ample returns.