The Axis Nifty Smallcap 50 Index Fund is a newly launched open-ended equity mutual fund by the Asset Management Company (AMC) Axis Mutual Fund, which has over 53 schemes to meet the different needs of investors. Usually, when investors think of investing in stocks and mutual funds, they tend to think about large-cap companies that tend to be industry leaders. While such companies provide stability in volatile markets, their return potential is limited. Hence, the small-cap market segment is one that investors and fund houses have begun to focus on as well now. Before we dive into why you should consider investing in the Axis Nifty Smallcap 50 Index Fund, let’s go over its basics.
Benchmark index and other basics
The Axis Nifty Smallcap 50 Index Fund’s benchmark index is Nifty Smallcap 50 TRI. This index consists of the top 50 companies from the top 100 companies of the Nifty Smallcap 250 index. They are selected based on average daily turnover. This index is designed in a way that it includes small-cap stocks that are the most liquid – higher weights are assigned to stocks that have a larger free float market cap.
While the Nifty Smallcap 250 index has a balanced sector diversification, the Nifty Smallcap 50 index leans heavily towards financial services, IT, and consumer goods. Since the index is based on market capitalization, which is subject to change, it is rebalanced every six months.
The Axis Nifty Smallcap 50 Index Fund has the same asset allocation, and its primary purpose is to track and mimic the small-cap market movements. The fund manager is Mr. Jinesh Gopani who has over 20 years of experience in the financial services industry and currently manages several other well-performing funds by the AMC. You can invest in it either through a lumpsum investment or through systematic plans like the Systematic Investment Plan (SIP) and the Systematic Transfer Plan (STP).
Reasons to invest in Axis Nifty Smallcap 50 Index Fund
Stocks of small-cap companies have been seen to be the alpha generators in growth cycles. This means that they have the highest growth potential in times of economic boom. While large-cap and mid-cap companies may be more established and less volatile, their growth potential is also generally limited. With small-cap companies, the returns can outperform the market and provide returns above the benchmark index and that is known as the alpha.
With this high return potential, small-cap stocks also come with a high-risk profile. This is because small-cap companies are usually just starting out and not all of them are going to be able to sustain and grow. Hence, it’s important, when investing in small-cap funds, to invest in the ones that focus on quality companies that have strong financials and prospects.
The Axis Nifty Smallcap 50 Index fund has a portfolio that is designed in a way that focuses on quality, scalability, and stability while seeking alpha for investors in the long term. Hence, if your risk appetite is high and your ultimate financial goal is wealth creation, then this small-cap fund may be the right investment for you.
In addition to mimicking the high-growth small-cap market, Axis Nifty Smallcap 50 Index Fund is also a low-cost and effective way to invest in the stock market. Being an index fund, its expense ratio is lower as index funds follow the strategy of passive management. Another benefit of index funds is that since they aim to replicate the broader market, they tend to outperform any one single investment in the long term.