Kotak Nifty Midcap 150 Index Fund – Direct (G) : NFO Details

Kotak Nifty Midcap 150 Index Fund is an open-ended index fund designed to replicate or track the Nifty Midcap 150 Index. Its objective is to provide returns corresponding to the index before expenses, subject to tracking errors, with no guarantee of achieving this goal. The fund allows subscriptions and redemptions at NAV-based prices daily. The benchmark, Nifty Midcap 150 (TRI), represents companies ranked 101-250 by market capitalization from Nifty 500. NAVs are disclosed daily on Kotak MF and AMFI websites. Redemption proceeds are dispatched within three working days, with a 15% annual penal interest for delays.

Details of the NFO: Kotak Nifty Midcap 150 Index Fund – Direct (G)

The investment objective of the Kotak Nifty Midcap 150 Index Fund – Direct (G) is to provide returns that, before expenses, corresponding to the total returns of the securities as represented by the underlying index, subject to tracking errors. However, there no guarantee or assurance that the investment objective of the scheme will be achieved.

Investment Strategy:

To achieve the investment objective, the Kotak Nifty Midcap 150 Index Fund – Direct (G) will follow passive investment strategy with investments in stocks in the same proportion as in Nifty Midcap 150 Index. The investment strategy would revolve around reducing the tracking error through regular rebalancing of the portfolio, taking into account the change in weights of stocks in the Index as well as the incremental collections/redemptions in the Scheme. Such rebalancing shall be done in accordance with timelines prescribed by SEBI from time to time.

Index Scheme being a passive investment carries lesser risk as compared to active fund management. The portfolio follows the index and therefore the level of stock concentration in the portfolio and its volatility would be the same as that of the index, subject to tracking error. Thus, there is no additional element of volatility or stock concentration on account of fund manager decisions.

A small portion of the net assets will be held as cash or will be invested in debt and money market instruments(as mentioned under asset allocation section) permitted by SEBI/RBI including TREPS or in alternative investment for the TREPS as may be provided by the RBI, to meet the liquidity requirements under the Scheme. The Scheme may take an exposure to equity derivatives of constituents or index derivatives of the underlying index for short duration when securities of the index are unavailable, insufficient or for rebalancing at the time of change in index or in case of corporate actions, as permitted by SEBI from time to time. Derivative products are leveraged instruments and can  provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies pursued by the fund manager involve uncertainty and decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies.

Risk Associated with Kotak Nifty Midcap 150 Index Fund – Direct (G)

Tracking errors are inherent in any index fund and such errors may cause the Kotak Nifty Midcap 150 Index Fund – Direct (G) to generate returns which are not  in  line  with  the  performance  of  the  Nifty  Midcap  150  Index or  one  or more securities covered by  / included in the Nifty Midcap 150 Index and may arise from a variety of factors. Delayed realisations, cash for redemptions can result into tracking error, including transactions costs of investments etc.The Scheme is subject to the principal risks described below. Some or all of these risks may adversely affect Scheme’s NAV trading price, yield, total return and/or its ability to meet its objectives.  

1.The NAV of the units is closely related to the value of stocks that form a part of the benchmark index. The value of this will react to stock market movements and may result in changes in the NAV of units under the scheme. There could also be movements in the scheme’s NAV due to changes in interestrates, macro-economic and political developments and over longer periods during market downturns;

2. Tracking  error  may  have  an  impact  on  the  performance  of  the  scheme.  However,  KMAMC  will  endeavour to minimize the tracking error through regular rebalancing of the portfolio.

3. The Scheme is a passively managed scheme and provides exposure to the benchmark and tracking its performance and yield. The Schemes performance may be affected by a general price decline in the stock markets. The Scheme invests in the stocks comprising the index regardless of their investment merit. The Mutual Fund does not attempt to take defensive positions in declining markets.

4. As the scheme proposes to invest not less than 95% of the net assets in securities comprising of Nifty Midcap 150 Index, any deletion of stocks from or addition to in Nifty Midcap 150 Index may require sudden  and  immediate liquidation  or  acquisition  of  such  stocks  at  the  prevailing  market  prices  irrespective of whether valuation of stocks is attractive enough. This may not always be in the interest of unitholders.

5.The performance of the Nifty Midcap 150 Index will have a direct bearing on the performance of the scheme. Hence any composition change by virtue of weightage or stocks selection will have an impact on the scheme.

6.Capital Gains Impact: Investors who trade in Kotak Nifty Midcap 150 Index Fund may be subject to Long Term Capital Gains or Short Term Capital Gains. Investors are requested to consult their tax / legal consultants before investing in the scheme.

7.The scheme will attract provisions of take over regulations, if KMMF invests in more than 10% of the paid up capital of a company and therefore may result into tracking errors and / or may not be able to accept further subscription in the Scheme.

8.The Index reflects the prices of securities at a point in time, which is the price at close of business day on the stock exchange. The Scheme, however, may at times trade these securities at different points in time during the trading session and therefore the prices at which the Plan trade may not be identical to the closing price of each scrip on that day on the BSE / NSE. In addition, the Scheme may opt to trade the same securities on different exchanges due to price or liquidity factors, which may also result in traded prices being at variance, from BSE / NSE closing prices. 

Risk Mitigation Strategies of Kotak Nifty Midcap 150 Index Fund – Direct (G)

• Market Risk and Volatility: Market risk is a risk is inherent to an equity scheme. Being a passively managed scheme, it will invest in the securities included in its Underlying Index.
• Concentration  /  Sector  Risk:  Index  Fund  being  a  passive  investment  carries lesser risk as compared to active fund management. The portfolio follows  the  index  and  therefore  the  level  of  stock  concentration  in  the  portfolio and its volatility would be the same as that of the index, subject to tracking error. Thus, there is no additional element of volatility or stock concentration on account of fund manager decisions. The Risk Mitigation strategy revolves around minimizing the Tracking error through regular rebalancing of the portfolio, taking into account the change in weights of stocks in the Underlying Index as well as the incremental collections into / redemptions from the Scheme.
• Liquidity  Risks: As such the liquidity of some stocks that the scheme invests into could be relatively low. The fund will endeavor to maintain a proper asset-liability match to ensure redemption payments are made on time and not affected by illiquidity of the underlying stock