DSP Mutual Fund launches DSP Nifty 50 Equal Weight ETF

DSP Investment Managers on Monday launched DSP Nifty 50 Equal Weight ETF, India’s first exchange-traded fund based on the Nifty 50 Equal Weight index.

The new fund offer (NFO) opens for subscription on October 18th and closes on October 29th, after which it will be purchased and sold on the exchanges, the company said.

In an equal weight index, each stock in it gets equal weight. For example, if the strategy is applied to Nifty 50, the equal weighted index will own the same 50 companies as Nifty 50 and will have 2% weight to each company, unlike the current market cap weight design where some stocks get large weights like 9-10% and many stocks in the lower tail get only 0.3%.

This gives all companies in the index an equal chance to contribute to returns rather than being overly dependent on the top 10.

“DSP has been the first mover in launching passive funds using the Equal Weight Strategy in India and we are excited to launch the first ETF tracking Nifty 50 Equal Weight index in the country,” said Kalpen Parekh, MD & CEO, DSP Investment Managers.

“When we studied this concept of equal weight indices globally, we noticed that over long periods equal weighting tends to earn better returns than market cap weighted indices. This happens as all the companies get a chance to participate rather than just the top few,” Parekh pointed out.

Parekh, however, added that such a strategy has its phase of underperformance when the economy’s profits are polarised to select companies like in the recent five years.

He added that over the long term, as good companies across sectors grow and create value, an equal weight strategy gives meaningful weight to each company in the index.

“Equal weighting also ensures that the most over-owned sector at any time is de-risked,” said Parekh.

Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Investment Managers, underscored equal weighting strategies takes advantage of certain market inefficiencies caused by behaviour biases.

“Equal weighting takes advantage of certain market inefficiencies caused by behaviour biases, since the strategy is not affected by the over-optimism in certain stocks and over-pessimism in others. Such inefficiencies have helped equal weight index strategy to outshine traditional market cap based index strategies,” says Ghelani.


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