Individual
Axis Max Life Sustainable Yield Index
Index Funds that track factor-based indices have grown in popularity in India in recent years. Currently there are a number of indices that select stocks based on factors such as quality score, momentu
In the meantime, use of factors such as free cash flow yield and dividend yield to build indices are as of yet relatively less common. This is where, the Axis Max Life Sustainable Yield Index offers a unique stock selection opportunity that can help prospective investors grow their wealth by tapping into a relatively untapped basket of stocks. Read on to know details about this customised index and how to invest in the Axis Max Life Sustainable Yield Index.
Disclaimer:
In Unit Linked Policies, the investment Risk in the investment portfolio is borne by the policyholder.
With Axis Max Life Investment Plans
High FCF/Dividend Yield Stocks: Stock selection based on free cash flow (FCF) yield for non-financial companies and dividend yield for financial companies.
Unbiased Stock Selection: Prebuilt portfolio to match the components of the index resulting in unbiased stock selection.
What is the Axis Max Life Sustainable Yield Index?
The Axis Max Life Sustainable Yield Index is a customised index based on the methodology suggested by Axis Max Life insurance and computed and maintained by NSE Indices Limited as an index computing agent. The Index aims to identify top-performing stocks from the NSE 500 universe based on Free Cash Flow Yield (FCF Yield) for non-financial companies and Dividend Yield for financial companies.
Since the Nifty 500 universe includes stocks that are diversified across market capitalisations and industries, the 50 stocks included in the Axis Max Life Sustainable Yield Index will also belong to various market caps and sectors. This way the basket of 50 stocks selected by the index will feature a balance between income potential and cash generation while ensuring that all regulatory requirements are met.
This index will mandatorily exclude Axis Bank and Axis Max Life Group stocks as part of the overall selection process along with companies in the Nifty 500 Index that feature negative net worth. In order to ensure that no single stock impacts the performance of the index disproportionately, the Axis Max Life Sustainable Yield Index will follow an equal-weight approach while ensuring that all IRDAI mandates regarding sector and stock capping are met.
The Axis Max Life Sustainable Yield Index would undergo quarterly rebalancing in March, June, September and December each year. Additionally, the index constituents will be reviewed on an annual basis in June of each year. Through periodic rebalancing and review, the index will ensure that its constituent stocks match the current market conditions and trends in order to deliver outperformance in various market conditions.
How are Stocks for the Axis Max Life Sustainable Yield Index Selected?
The Axis Max Life Sustainable Yield Index stock selection methodology focuses on identifying companies listed on the National Stock Exchange (NSE) that have the highest dividend yield (for financial companies) and free cash flow (FCF) yield for non-financial companies. The stock selection process starts with the Nifty 500 Index stock universe and any listed stock that is not part of Nifty 500 is automatically excluded.
Next the below exclusion criteria are applied:
The next step involved calculation of dividend yield or FCF yield for the remaining stocks, as applicable.
The formula to calculate dividend yield for a financial stock is as shown below:
Dividend Yield = Dividend per share/Stock price of financial company stock
Similarly, free cash flow yield of a non-financial stock is calculated using the below formula:
Free Cash Flow (FCF) Yield = Free Cash Flow/Market capitalization of non-financial company stock
In the above formula,
Free Cash Flow = (Cash flow from operative activities) – (Capital Expenditure)
and
Capital Expenditure = [(Capital Work-in-Progress of Current Year) - (Capital Work-in-Progress of Previous Year)] + [(Gross fixed assets excluding revaluation reserves of the current year) – (Gross fixed assets excluding revaluation reserves of the previous year)]
Once the Dividend Yield and FCF yield calculations have been completed, the Z score of the eligible financial stocks and non-financial stocks is calculated using dividend yield or FCF yield, as applicable. Next both the Dividend Yield Z score and FCF Yield Z score are normalised in line with the performance of industry peers.
Subsequently, a percentile rank is assigned to each of the normalised Z scores and the 50 stocks with the highest percentile score are selected for inclusion into the Axis Max Life Sustainable Yield Index. Since this an equal weight index, the weight of each stock on the Index will be the same irrespective of sector or market cap, subject to applicable sector and stock-specific capping limits specified by IRDAI.
Snapshot of Stocks and Sectors Featured on the Axis Max Life Sustainable Yield Index
As the dividend-yield and free-cash yield factors are sector as well as market-cap agnostic in nature, the Axis Max Life Sustainable Yield Index features stocks across various industries and market-caps. Below is a short list of 10 stocks that illustrate this diversification as of 31 December 2024:
| Stock Name | Market Cap Category | Industry/Sector |
|---|---|---|
| Oil & Natural Gas Corporation | Large Cap | Oil and Gas |
| NLC India | Mid Cap | Power |
| Hindustan Zinc | Mid Cap | Metals and Mining |
| IRB Infrastructure Developers | Mid Cap | Infrastructure |
| Chennai Petroleum | Small Cap | Oil and Gas |
| Gujarat Pipavav Port | Small Cap | Logistics (Ports) |
| Redington | Small Cap | Financial Services |
| Birla Corp | Small Cap | Diversified |
| Castrol India | Small Cap | Auto Ancillaries (Lubricants) |
| J K Paper | Small Cap | Paper |
As you can see from above, this index features stocks with a high degree of diversity across market cap as well as sectors/industries. Moreover, these 10 stocks along with the remaining 40 companies featured on the index would feature an equal weightage subject to the sector and stock capping limits specified by IRDAI. This would ensure that the concentration risk resulting from high levels of exposure to any specific stock or sector is minimized.
Returns of the Axis Max Life Sustainable Yield Index
Axis Max Life Sustainable Yield Index is a customised index based on the methodology suggested by Axis Max Life insurance and computed and maintained by NSE Indices Limited as an index computing agent. The Index aims to identify top-performing stocks from the NSE 500 universe based on Free Cash Flow Yield (FCF Yield) for non-financial companies and Dividend Yield for financial companies. Due to its recent inception, historical data is currently limited.
The back-tested data of the index indicates the outperformance of this index versus the broad-based Nifty 500 Equal Weight Index over various time periods. Below is a comparison of the performance of the Nifty 500 Equal Weighted Index versus the Axis Max Life Sustainable Yield Index over various time periods as of 31 December 2024:
| Index Name | 1 Year Returns | 5 Year Returns | 10 Year Returns |
|---|---|---|---|
| Nifty 500 Equal Weight Index | 23.10% | 27.75% | 14.90%** |
| Axis Max Life Sustainable Yield Index | 44.14% | 40.51% | 25.20%** |
Source: Nifty Indices and Axis Max Life Back-test. In the above table, returns are based on price returns index as of 31 December 2024. 1 year returns are absolute returns, returns for greater than one year are CAGR returns. **Returns as on 29th November, 2024.
Check the Axis Max Life Sustainable Yield Index Factsheet for additional details.
As you can see from the back-tested data, the Axis Max Life Sustainable Yield Index has historically outperformed the Nifty 500 Equal Weight Index across various time periods whether one considers the short term, medium term of long-term returns data. While, such back-tested data do not guarantee that the same level of performance will be maintained in the future, it does point towards the potential of this Index to deliver high returns exceeding those of the Nifty 500 Equal Weight Index over the long term.
How to Invest in the Axis Max Life Sustainable Yield Index?
Currently there are limited ways to invest in and benefit from the stocks that are part of this customised index. One way would be to recreate the index through direct equity purchases and rebalance the portfolio every quarter along with reconstituting the index annually in response to changing market conditions and stock performance. However, this process would be extremely time consuming and may be quite expensive after factoring in the brokerage, depository fees, Capital Gains Tax and various other charges.
The less time-consuming alternative is to purchase units of an index fund that replicates and tracks the performance of this index. One such index fund is the Axis Max Life Sustainable Wealth 50 Index Fund, which is offered as part of Axis Max Life ULIP offerings such as Axis Max Life Flexi Wealth Advantage Plan which also provides the benefit of life cover to the policyholder. This method of index investing would be significantly less expensive that direct equity purchase and you would also benefit from professional fund management and transparent, unbiased rules-based stock picking.
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FAQ's about Axis Max Life Sustainable Yield Index
ARN: Jan25/Bg/02D
Disclaimers:
In Unit Linked Insurance Plans, investment risk is borne by the policyholder. The linked insurance products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in linked insurance products completely or partially till the end of the fifth year. Unit Linked Insurance Products (ULIPs) are different from the traditional insurance products and are subject to the risk factors. The premium paid in the Unit Linked Life Insurance Policies is subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Axis Max Life Insurance is only the name of the insurance company and Axis Max Life Flexi Wealth Advantage Plan is only the name of the unit-linked life insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these funds, their future prospects or returns.
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