The National Stock Exchange (NSE) and Mirae Asset MF have collaborated to create a new index called the Nifty Smallcap 250 Momentum Quality 100. This index will be tracked by the Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF, which will aim to imitate the performance of the index and will be reviewed and rebalanced every six months.
Unlike traditional passive funds, factor-based or smart-beta funds involve the creation of an alternative index. The Nifty Smallcap 250 Momentum Quality 100 index will consist of 100 stocks that are selected based on liquidity, quality, and momentum factors.
Approximately 30-40 stocks will be eliminated after applying a liquidity filter, with the remaining stocks being assessed based on a composite score of quality and momentum factors. The index aims to limit downside by constructing a universe of stocks with a quality factor and performs better than the regular small-cap index during market rallies.
While this new factor-based index has shown promising results, mutual fund experts caution that a well-managed actively-managed small-cap fund can still generate significant outperformance over the benchmark index. They also emphasize that the quality and liquidity factors may not be enough to steer clear of companies with bad corporate governance.
Investors are advised to consider the track record of the new ETF before investing and to stick to actively-managed funds with a solid long-term track record in the small-cap category. The small-cap category is highly volatile, so using SIPs (systematic investment plans) to stagger investments is recommended.
The new fund offer period for the Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF is open until 21 February. Investors are reminded to ensure that their exposure to small-cap funds aligns with their risk tolerance levels.
