Low cost large cap index beater

Vishal Jain

Head of ETF

Reliance Nippon Life AMC

  • Actively managed large cap funds are finding it increasingly difficult to beat the index
  • For those who aspire for alpha in the large caps space, an effective and low cost alternative is the Nifty Next50 index – which has handsomely outperformed the Nifty over the last 10 years
  • Reliance now introduces its Junior BeES in an IFA friendly Fund of Funds format, which obviates the need to have demat accounts and exchange trading

We hear very often that investing in equities is the best avenue for creating long term wealth and thereby preserve the purchasing power of currency by beating inflation.

For many among us the well-known method of participating in equities as an asset class is via researching individual companies. This could be achieved through a combination of various techniques such as going through Annual Reports and financial statements of companies that look good, taking advice of peers, financial experts and so on and so forth.

However, very often the experience of many investors who have tried their luck at stock picking isn’t all that encouraging. This is because consistently trying to find great companies is akin to looking for needles in a haystack! Sometimes it almost seems like an exercise in futility, as the endeavour of consistently identifying winning stocks is easier said than done.

A simple and effective method of circumventing the above is to invest in a basket of NiftyNext50 stocks which are LargeCaps but ‘aspire’ to be a part of the Ivy league of NIFTY 50 stocks. In other words, these stocks act as an incubator to the Nifty50 Index. Over last 18 years, 41 stocks have been upgraded to NIFTY 50, out of which 27 stocks presently form the part of NIFTY 50. Over the last 10 years, the Nifty50 Price Index has given returns of 13.90% while the NiftyNext50 Price Index has provided returns of 20%.

The obvious question in anyone’s mind would be that if I would be better off investing in to an actively managed large cap fund.

We did a study of Reliance ETF JuniorBeES (an Exchange Traded Fund tracking the NiftyNext50 Index, launched in Feb 2003) versus 25 LargeCap schemes, and the results show that it is becoming extremely difficult to beach the benchmark in the Largecap segment. Over a 5 years rolling return analysis, Reliance ETF Junior BeES was in the top quartile 88% of the times while there were only 4 out of the 25 LargeCap schemes in the top quartile for a period longer than Reliance ETF JuniorBeES. In addition, to be able to pick these 4 winners, one would really need a crystal ball !!

Enthused by the results, we are now introducing Reliance JuniorBeES Fund of Fund.

Reliance Junior BeES FOF (Fund of Fund)

The investment objective of the Scheme is to seek to provide returns that closely correspond to returns provided by Reliance ETF Junior BeES by investing in units of Reliance ETF Junior BeES. However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved.

Reliance ETF Junior Bees is the largest and the oldest fund that mimics the Nifty Next 50 Index! Current AUM is a little over Rs 900 crore and since its launch in February 2003 by giving a return of about 21% CAGR.


Key features of Junior BeES FOF :

  • Eliminating Non Systemic risks such as Fund manager bias & Stock specific risk
  • Participate in the growth story of many of the Nifty Next 50 Large Cap stocks becoming Nifty 50 stocks.
  • Low concentration risk – Nifty Next 50 is a well-diversified Index with maximum weight to a single stock at 5.95% as on 31st Jan ’19.
  • Low Cost – TER of FOF is 0.40% in Regular Plan, No Exit Load
  • Capturing Nifty stocks in infancy – Over last 18 years, in all 41 stocks have been upgraded to NIFTY 50, out of which 27 stocks presently form the part of NIFTY 50
  • Equity Taxation – as underlying is 100% Equity.
  • Opportunity for non-demat holders to seek exposure to large cap segment of the market via investing in Reliance Junior BeES FoF

Performance of NiftyNext 50 Index vs Nifty Index


Top 10 Stocks and Industries of Nifty Next 50 Index


*Above data is as of Jan 31, 2019

In our view, investing into Reliance Junior BeES FoF is a good way to participate in the equity markets with an endeavour to achieve competitive and consistent large-cap returns. You may like to recommend allocations to your investors.

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