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NFO Update - IIFL Dividend Opportunities Index Fund
June 6, 2012

This article introduces you to first of its kind Index fund presenting and interesting investment opportunity to Indian investors. In this article, we have analysed the features and benefits of this fund.


Author : Raju Singh



 IIFL Dividend Opportunities Index Fund

IIFL Dividend Opportunities Index Fund is an open-ended Index Fund. This is a passively managed fund and will invest in companies that are part of CNX Dividend Opportunities Index in the same proportion as in the index.

Salient features of the fund

The investment objective of the scheme is to provide returns (before fees and expenses that closely correspond to the total return of the CNX Dividend Opportunities Index, subject to tracking errors).

Asset Allocation of the fund:

Instruments

% Holdings

Risk Profile

Stocks comprising CNX Dividend Opportunities Index *

95%-100%

High

Debt and money market instruments

0%-5%

Low to Medium

* The Scheme may take an exposure to equity derivatives of underlying index or constituents of the Underlying Index when equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period.
 Source: SID, iFAST Compilation

CNX Dividend Opportunities Index

The CNX Dividend Opportunities Index comprises of high yielding companies listed on National Stock Exchange (NSE). Currently, 50 stocks across 25 sectors constitute this index. It has diversification across large cap and mid cap stocks. Basically, this is a thematic index that focuses on high dividend yield companies.

As on 30 March 2012, CNX Dividend Opportunities Index represents around 14.02% of the free float market capitalisation of the stocks listed on NSE. The index is rebalanced once in a year and weightage to a particular constituent is capped at 8% while the weightage of a stock may increase up to a maximum of 10% between the rebalancing periods.

 Key Selection criteria for index constituents:

  • The top 300 market capitalisation companies are ranked based on their average free float market capitalisation and aggregate turnover for the last six months
  • Companies should have a positive net worth as per latest annual audited results
  • Companies must have reported net profit as per latest annual audited results
  • Top 50 companies ranked by annual dividend yield will form part of the index

Table 1: Top 15 constituents of CNX Dividend Opportunities Index as on 30 April 2012


Sr. No.

Company Name

Weightage (%)

1

Oil & Natural Gas Corporation

8.12

2

Hindustan Uniliver

7.99

3

ITC

7.83

4

Bajaj Auto

6.39

5

Hero MotoCorp

6.27

6

NTPC

6.09

7

Asian Paints

4.68

8

Bank of Baroada

4.24

9

ACC

3.38

10

Punjab National Bank

3.31

11

Glaxosmithkline Pharmaceuticals

2.63

12

LIC Housing Finance

2.30

13

Colgate Palmolive

2.17

14

Zee Entertainment Enterprises

2.00

15

Rural Electrification Corporation

2.00

Source: IIFL product note, iFAST Compilation

Table 2: Key Statistics comparison of CNX Dividend Opportunities Index with other Indices as on 4 June 2012


Index Name

Dividend Yield

Price/ Earnings (P/E)

Price/ Book Value (P/B)

CNX Dividend Opportunities Index

2.82

11.07

2.51

S&P CNX Nifty

1.68

16.28

2.84

CNX 100

1.67

15.96

2.68

BSE Sensex

1.84

15.68

2.95

BSE Midcap

1.51

16.97

1.75

Source: NSE, BSE, iFAST Compilation

Performance of the Index

The CNX Dividend Opportunities Index has managed to outperform other broader indices like Sensex and Nifty since inception. As on 4 June 2012, the CNX Dividend Opportunities Index has delivered an annualised return of 14.86% for 3 year period whereas BSE Sensex and S&P CNX Nifty have returned 2.12% and 1.97% respectively. This index has fared well compared to BSE Sensex and S&P CNX Nifty during the rally of 2009 while during the market fall; it had fallen in line with these indices. During the market fall of 2008 (from 1 January 2008 to 9 March 2009), the Dividend Opportunities Index declined similar to BSE Sensex and S&P CNX Nifty while during the market rally (9 March 2009 to 10 November 2010) it has outperformed  these indices by wide margins. The CNX Dividend Opportunities Index has delivered absolute returns of 213% as against the BSE Sensex and S&P CNX Nifty absolute returns of 156% and 144% respectively.

Chart 1: Relative performance of CNX Dividend Opportunities Index with other major indices

 

Chart 2: Yearly performance of CNX Dividend Opportunities Index with other major indices

Fund Manger

Manish Bandi (B.Sc, CA) is the fund manager of the Scheme. Mr Bandi has total experience of 11 years in the financial services industry. Prior to joining India Infoline Asset management Ltd, he has worked with IIFL Wealth Management Ltd and India Infoline Ltd.  He had been part of investment committee and fund management team and held various senior managerial positions in the field of equity advisory, portfolio Management Services, Equity broking, Business & Process reviews and audits etc. He has also worked with organizations like Kotak Mahindra Bank Ltd, Motilal Oswal Securities Ltd, Batliboi & Purohit Chartered Accountants.
He also manages IIFL Nifty ETF.

Our take on this NFO

IIFL Dividend Opportunities Index Fund is definitely providing a unique investment option to Indian investors. The focus on high dividend yielding companies in itself suggests that these companies generally have very stable business prospects. That apart, filtering of negative net worth and negative net profit companies to qualify as an index constituent reduces the probability of underperformance as it ignores these stocks even though their market capitalisation is amongst the top 50 stocks.

We believe that the fund has potential to deliver good returns over the long term. Investors who are looking for high dividend yielding companies should definitely consider this fund. This fund will also provide diversification benefit to the portfolio.

Fundsupermart risk rating of the fund is 6. This means that the fund is amongst the lower band of the high risk funds. (Refer Know Your Risks!)

 New Fund Offering Details

Nature of the Fund

Open ended Index Fund

NFO Opens on

06-Jun-12

NFO Closes on

19-Jun-12

Minimum Investment Amt.

Rs. 5000

Taxation

Same like equity funds

Fund Manager

Manish Bandi

Entry Load

Nil

Exit Load

1% if redeemed/ switched out within 1 year of units allotted

Benchmark

CNX Dividend Opportunities Index

Source: SID, iFAST Compilation


Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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