Invest in Credit Risk Mutual Fund or not?

Diversification is a critical component of a well-diversified financial portfolio. Investors attempt to diversify their holdings among various asset classes, including equities, debt, real estate, and gold. Even within asset classes, they seek to diversify more to mitigate risk. Diversifying your equity portfolio by investing in companies from various sectors and market capitalizations is a well-known strategy of lowering risk in equity investment. This is where Index Funds come into play.

An Index Mutual Fund, as the name implies, invests in equities that mimic a stock market index such as the NSE Nifty, BSE Sensex, and so on. These are passively managed funds, which means the fund manager invests in the same assets and in the same proportions as the underlying index and does not modify the portfolio composition. These funds aim to provide returns that are comparable to the index they monitor.

Recently, Edelweiss Asset Management today announced the launch of the Edelweiss Large and Midcap Index Fund, an open-ended equity plan that replicates the Nifty Large and Midcap 250 Index. The index’s allocation to large and midcap stocks ensures a balance of growth (midcap) and stability (large-cap). That said, this is the first of its kind index fund which provides equal exposure to large and midcap stocks in one portfolio.

Investment objective

The scheme’s investment goal is to deliver returns that nearly match the total returns of the Nifty Large Midcap 250 Index, subject to tracking mistakes. This index has a solid track record and has outperformed large & midcap, and flexicap funds.

The balanced weighting of large-caps and midcaps avoids skewness to any single market cap sector while also providing considerable exposure to attractive midcap stocks.

“Index funds are gaining popularity, more so due to simplicity of the product. It is uncomplicated as it  is easy to track and doesn’t need frequent reviews. This product is based on a very unique Nifty Large Midcap 250 Index, which balances its exposure to large-caps and midcaps in one portfolio,” said Radhika Gupta, MD & CEO, Edelweiss Asset Management.

“Complementing active funds in one’s portfolio, the fund is an apt solution for Do-It-Yourself (DIY) and first-time investors for their core investment allocation. This fund is likely to create enduring value in the long run for Investors,” Gupta added.

What should investors know?

– The scheme allows an investment amount from Rs 5,000 and multiples of Re 1/- after that with NIL exit load.

-The fund may generate low to negative returns in the short term. This means that investors have to remain invested for 5-7 years to gain meaningful returns.

-It has regular and direct plans.

-The fund will be managed by the fund manager Bhavesh Jain