Zerodha Fund House Launches Two New Exchange Traded Funds: Should You Invest?

Introduction: Zerodha Fund House has introduced two new fund offers (NFOs) with their launch on May 27, 2024. These are the Zerodha Nifty 100 ETF and the Zerodha Nifty Midcap 150 ETF, both open-ended, passive, equity exchange-traded funds (ETFs). Subscription for these ETFs will be open until June 7, 2024. Here’s a detailed look at these offerings and whether they might be suitable for your investment portfolio.

Zerodha Nifty 100 ETF

Overview:

• Objective: Replicate the performance of the Nifty 100 Total Returns Index (TRI).
• Market Coverage: Top 100 companies by full market capitalization within the Nifty 500 universe.
• Market Share: Covers approximately 69% of the free float market capitalization.
• Performance: Historically delivered a compound annual growth rate (CAGR) of 17.56% with a volatility of 21.53%.

Zerodha Nifty Midcap 150 ETF

Overview:

• Objective: Mimic the performance of the Nifty 150 Midcap TRI.
• Market Coverage: Targets emerging mid-cap companies with significant growth potential.
• Market Share: Covers around 15% of the free float market capitalization.
• Performance: Achieved a CAGR of 18.06% since inception, coupled with a volatility of 21.13%.

Investment Considerations

Market Exposure:

• Nifty 100 ETF: Suitable for investors looking to invest in established, large-cap companies. These companies are often sector leaders and provide stability and steady growth potential.
• Nifty Midcap 150 ETF: Caters to those seeking higher growth opportunities through mid-cap companies, which typically come with higher volatility.

Long-term Growth:

• Both ETFs are designed for long-term capital appreciation.
• Investors with a long-term horizon who are confident in the continued growth of the Indian economy might find these ETFs attractive.

Diversification:

• Nifty 100 ETF: Offers broad exposure to large-cap companies, providing diversification within the large-cap segment.
• Nifty Midcap 150 ETF: Provides access to a diversified portfolio of mid-cap stocks, allowing for exposure to companies with higher growth potential.

Risk Appetite:

• Historical returns and volatility indicate potential for significant returns, but also considerable risk.
• Investors should carefully assess their risk tolerance before investing.

Strategic Importance

Vishal Jain, CEO of Zerodha Fund House, emphasized the strategic importance of these launches:

“As the only passive-only fund house in India, we have a responsibility to Indian investors to pave the way not just in terms of individual funds, but also in offering new strategic combinations that give them flexibility to gain exposure across different segments of the Indian capital market. The two new ETFs offer an opportunity to investors to get exposure in the key segments that broadly represent the Indian economy, and may capitalize on the India growth story.”

Fund Management

Kedarnath Mirajkar, Fund Manager at Zerodha Fund House, will oversee both funds, ensuring professional management and adherence to the fund’s objectives.

Conclusion

Should You Invest?

• Yes, if: You are looking for long-term capital appreciation, believe in the growth potential of the Indian economy, and seek diversification within large-cap and mid-cap segments.
• No, if: You have a low-risk tolerance or a short-term investment horizon.

Investing in these ETFs can provide a balanced approach to gaining exposure to different segments of the Indian market. However, it’s essential to align these investments with your overall financial goals and risk appetite.

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