DSP launches Nifty 50 Equal Weight ETF. 5 things to know

In an equal weighting index, each of its stocks gets equal weighting. Thus, if the strategy is applied to the Nifty 50, the similarly weighted index would own 50 companies similar to the Nifty 50 and have a 2% weighting for each company, in contrast to the current market cap weight design, where some stocks would be ranked as 9-10. Gets great weight. % and several stocks in the lower tail get only 0.3%, the company said.

This gives all companies in the index an equal chance to contribute returns instead of relying heavily on the top 10.

DSP Equal Nifty 50 ETF, by virtue of its methodology, aims to provide better sector and stock diversification as compared to Nifty 50 Index. The top 10 stocks accounted for nearly 60% of the weighting of the Nifty 50 index as on September 30, 2021, as compared to around 20% of the Nifty 50 similarly-weighted index. The Nifty 50 Equal Weighted Index has outperformed the Nifty 50 Index by 2.02% CAGR and outperformed the Nifty 50 Index in 12 of the 21 calendar years.

Here are 5 things to know about the fund

• DSP Equal Nifty 50 ETF adheres to two key investment principles – investing in sector leaders who can ride through market cycles, along with better diversification across companies and sectors with similar stock weights that are comparable to Nifty Fewer stocks offer specific risk and less sector concentration.
• Apart from having a diversified portfolio at a relatively low cost, Nifty 50 Equal Weight ETF offers the benefits of ease of purchase and real time trading.
• The Equal Weight Index gets rebalanced on a quarterly basis.
• Because of this quarterly rebalancing method, an equal-weighted portfolio has a built-in profit booking mechanism to actually buy the underperformers at the “low” and sell the outperformers at the “high.”
• The New Fund Offer opens for subscription on October 18 and closes on October 29, after which it will be bought and sold on exchanges.

“DSP has been the first mover to launch passive funds using the equal weight strategy in India and we are excited to launch the first ETF tracking the Nifty 50 Equal Weight Index in the country. When we studied this concept of equal weighting indices globally, we observed that over the long term, equal weighting yields better returns than market capitalization weighted indices. This is because instead of just a few top companies all companies get a chance to participate. Such a strategy has its own phase of underperformance when the economy’s profits are polarized like those of select companies in the recent five years. However, over the long term, as good companies in sectors grow and create value, an equal weighting strategy assigns meaningful weighting to each company in the index. Equal weighting also ensures that the most owned sector is free from risk at any given time,” said Kalpen Parekh, MD & CEO, DSP Investment Managers.

“Equal weighting takes advantage of certain market inefficiencies caused by behavioral bias, as the strategy is not affected by over-optimism in some stocks and over-pessimism in others. Such inefficiencies tend to outperform traditional market cap-based index strategies.” Equal Weighting Index strategy for the company has helped,” said Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Investment Managers.