Max Life Nifty Alpha 50 Index Fund: Where Flexibility meets lucrative Returns

Max Life Nifty Alpha 50 Index Fund, a flexi cap index fund with alpha investing strategy, is a recently launched NFO (New Fund Offer) that tracks the Nifty Alpha 50 Index

. This index comprises the top 50 NSE-listed stocks ranked on the basis of Jensen’s Alpha Score. In effect, the Max Life Nifty Alpha 50 Index Fund will aim to replicate the performance of the Index within the margins of tracking error.

The rationale behind Max Life Nifty Alpha 50 Index Fund is to capture the market trends effectively by focusing on 50 NSE-listed stocks with the highest alpha irrespective of the market cap of individual stocks. Interested investors can choose to switch their existing Max Life ULIP funds to the new scheme or opt for a fresh ULIP investment with this fund to get the dual benefit of insurance and investment in a single scheme.

The Max Life Nifty Alpha 50 Index Fund would feature a flexicap approach by replicating the Nifty Alpha 50 Index. Historically, the Index which has effectively adapted to the changing market conditions. For example, it significantly reduced the small cap exposure which resulted in a sharp correction with returns of 83% in FY’24.

This shows that if you’re looking for high returns over a long investment period while considering the risk-factor, Max Life Nifty Alpha 50 Index Fund is going to be a good pool to dwell your money in. In addition to this, new index fund launches have shown positive impact in the prevailing market conditions as such launches continue to be the market share drivers, especially when it comes to the online broker counter.

This belief has been strengthened by the performance of the previously launched two new index funds by Axis Max Life, namely the Nifty Small-cap Quality Index fund (launched in August 2023) and Midcap Momentum Index fund (launched in January 2024).

The first step towards understanding index funds is to comprehend what an index is. An index is like a basket of different types of securities (e.g. equity shares). The purpose of an index is to measure and represent the performance of investments. A simple example of an index is Nifty 50 or BSE Sensex.

Basis the above explanation, an index fund is a type of mutual fund that one can use to invest in an entire index of stocks without falling into the market complications. An index fund has a portfolio in which there are a set number of stocks as that of the index that its attempting to replicate. For example, a Nifty 50 index fund will have 50 stocks in exactly the same proportion as that of Nifty 50 index. This helps the fund to mimic the performance of the chosen index.

Investing in an index fund is a good option for long-term investment as it offers a healthy exposure to the stock market at lower operating cost. For a long term investment option such as one’s retirement planning, opting for index fund investment is a safer bet yielding impressive returns.

In order to fully understand the Nifty Alpha 50 Index Fund, it is important to understand the term Alpha which is short for Jensen’s Alpha. In the realm of investments, alpha acts as a measure of the outperformance of an investment with respect to a specific benchmark index.

For easy comprehension, excess risk-adjusted returns of an investment compared to its chosen benchmark index can be termed as the Alpha of the investment. Jensen’s Alpha value can be Positive, Negative and Zero as per the performance of the chosen stocks vs benchmark index.

Please note, a high alpha score recorded in the past does not imply that the same level of performance will be sustained in the future.

To understand the working of Nifty Alpha 50 Index Fund, let us see the eligibility criteria of stock inclusion:

• The prospective stock must have a listing history of 1 year at least

• Companies must have domicile in India only

• Must be listed on the National Stock Exchange or NSE

• Must be in the list of 300 largest NSE-listed companies ranked on the basis of free-float market capitalization

• Must have a 100% trading history in the previous year

Stocks that are deemed eligible based on the above criteria are then further sorted on the basis of their Jensen’s Alpha score. The 50 stocks with the highest alpha score are subsequently included in the index. Furthermore, the weight of an individual stock on the index is also determined based on their Alpha score.

So, the Max Life Nifty Alpha 50 Index Fund will replicate the constituent stocks of the index with the same weight as well as perform re-balancing of its portfolio as per the rebalancing schedule of the Nifty Alpha 50 Index.

Nifty Alpha 50 Index Fund comprises of the top 50 stocks basis the Jensen’s score of each stock, as listed in the NSE, mimicking the weightage of Nifty Alpha 50 Index. Top 10 constituents of the Nifty Alpha 50 Index Fund are tabulated below, along with their individual weights as of 30 April 2024:

Along with the top constituents of the index, here are the Top 10 sectors that are featured on Nifty Alpha 50 Index as of 30th April 2024:

As we can see, the Nifty Alpha 50 Index is quite diverse with a rich list of varied sectors thus giving wide exposure to one’s portfolio. Since this diversification will be replicated by the Max Life Nifty Alpha 50 Index Fund, investors would benefit from the flexi-cap diversified approach of this scheme.

Since the Max Life Nifty Alpha 50 Index Fund is a new introduction, there is no returns data for the fund as of yet. However, since the aim of the fund is to mirror the index and generate comparable returns within the margins of tracking error, the returns of the Nifty Alpha 50 Index can serve as suitable starting point.

The historical returns of the Nifty Alpha 50 Index over different time periods as of 30th April 2024:

You can definitely consider investing in this lucrative index fund (via the Axis Max Life Unit Linked Insurance Plan route). Let’s quickly have a look at the potential reasons:

• Potentially high long-term equity-linked returns

• Inclusion of high-alpha investments to diversify portfolio

• Incorporation of flexi-cap investment strategy into existing investments

• Index investing that ensures complete transparency in stock selection and sales

• No fund manager bias as the fund mirrors the index composition

• Periodic rebalancing to ensure that investors benefit from changing market conditions

• Life Cover offered to investors

Now that you have a better understanding of the key benefits that fund can offer investors, let’s take a closer look at how you can invest in the Max Life Nifty Alpha 50 Index Fund.

Those who want to invest in the Max Life Nifty Alpha 50 Index Fund can do so through the ULIP offerings currently available with Axis Max Life Insurance. So, investors will also get life insurance benefits from this investment. The NFO period of this index fund will start on 16th May 2024 with 31st May 2024 as end date. During this period, fund units will be available at the introductory price of Rs. 10 per unit.

Current Axis Max Life Insurance ULIP offerings that can allow investors to benefit from this investment include Online Savings Plan, Capital Guarantee Plan (via online aggregators & Axis Max Life Insurance website), Fast Track Super Plan and Flexi Wealth Advantage Plan (via offline channels).

Disclaimer: In ULIP Plans investment risk is borne by the Investor.