Bandhan Nifty 500 Value 50 Index Fund: Wealth creation through passive value investing

Bandhan MF has launched an NFO, Bandhan Nifty 500 Value 50 Index Fund. This is a passive fund which will track the Nifty 500 Value 50 Index. Low cost, no human bias (rule based investing),convenience and flexibility are among main benefits of index funds. Nifty 500 Value 50 Index is factor index, which unlike broad market indices, selects stocks based on some rules. Factor indices select stocks from the constituents of a certain benchmark index like Nifty 50, Nifty 100, Nifty 500 etc based on different factors like Momentum, Volatility, Beta, Alpha, Dividend Yield, Value, Quality etc. The NFO has opened for subscription on 14^th October and will close on 24^th October. In this article we will review Bandhan Nifty 500 Value 50 Index Fund NFO.

How factors drive investment returns?

Factor indices are constructed based on quantitative, rule-based investment strategies based on specific characteristics that have historically driven a portfolio's returns and risk. Factor indices select stocks from the constituents of a certain benchmark index like Nifty 50, Nifty 100, Nifty 500, etc based on different factors like Momentum, Volatility, Beta, Alpha, Dividend Yield, Value, and Quality, etc. The core idea behind factor investing is to know which specific factors, beyond the overall market make some investments do better or worse.

Source: Bandhan MF

What is value investing?

Value investing seeks to achieve excess returns by identifying stocks that are undervalued compared to their intrinsic value. Markets often misprice stocks, either overestimating or underestimating their true worth. Stocks trading at a significant discount offer a margin of safety for investors and can deliver superior returns when the market recognizes and re-rates their intrinsic value.

How value investing works?

• Value investing is a strategy that targets stocks that are presumed to trade at aprice lower than their intrinsic value.


• The foundation of the value factor is the notion that cheaply priced stocks outperform pricier stocks in the long term.


• The factor takes into consideration multiple metrics focused on different areas of company valuation.


• Most common valuation metrics used are PE, PB, PS, and Dividend Yield.

Value investing has outperformed the broad market

The chart below shows the growth of Rs 10,000 investment in Nifty 500 Value 50 TRI and Nifty 50 TRI over the last 10 years. You can see that the Value index had outperformed the broad market.

Source: National Stock Exchange, as on 30^th September 2024

How is the Nifty 500 Value 50 Index constructed?

Top 50 companies from the Nifty 500 index with the highest value score based on Earnings to Price ratio (E/P), Book Value to Price (B/P), Sales to Price (S/P), and Dividend Yield. Index constituents have tilt-based weights (Free Float Market Cap x Value score). Stock weights are capped at the lower of 5% or 3 times the weight of the stock in the index based only on free-float market capitalization.The index is rebalanced semi-annually in June and December.

Value factor has seen resurgence in the post-pandemic world

The value factor outperformed the broad market in the mid to late 2000s, underperformed in the 2010s, but is again outperforming in the post-COVID market.

Source: National Stock Exchange, as on 30^th September 2024

Sector Allocation

The table below shows the sector composition of Nifty 500 Value 50 Index in different quarters over the past 5 years. You can see that the Value Strategy is more inclined to certain sectors on a consistent basis. For example allocation to Financial Services has been consistently in the range of 20 – 26%. Similarly, allocation to Energy has been in the range of 21 – 29%.

Source: NSE, Bandhan MF, as on 30^th June 2024

Market cap allocation

The table below shows the market cap allocations of Nifty 500 Value 50 Index in different quarters over the past 5 years. You can see that the market cap allocation of the value index is biased towards large cap with allocations ranging from 51% to 68% in the last 5 years. The large cap bias will provide relative stability to your portfolio in volatile markets.

Source: NSE, Bandhan MF, as on 30^th June 2024

Limitations of Value Strategy

• Undervalued stocks may take time to realize potential, leading to extended periods of underperformance.


• May witness deeper and longer drawdowns compared to broader indices.


• Value strategies may exhibit greater sector concentration.

You need to be aware of these limitations and have long investment horizons for this fund.

Who should invest in Bandhan Nifty 500 Value 50 Index Fund?

• Investors seeking to benefit from unlocking ‘Value Opportunities’.


• Investors having a very long-term investment horizon (minimum 5 years).


• Investors with tolerance for significant drawdowns.

Investors should consult their financial advisors or mutual fund distributors if Bandhan Nifty 500 Value 50 Index Fund is suitable for your investments.

Disclaimer:

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of Bandhan Mutual Fund (formerly known as IDFC Mutual Fund). The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the security may or may not continue to form part of the scheme’s portfolio in future. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither Bandhan Mutual Fund (formerly known as IDFC Mutual Fund)/ Bandhan Mutual Fund Trustee Limited (formerly IDFC AMC Trustee Company Limited) / Bandhan AMC Limited (formerly IDFC Asset Management Company Limited), its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.