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India's first Nifty Non-Cyclical Consumer Index Fund

7th May, 2024

India's first Nifty Non-Cyclical Consumer Index Fund

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Context

  • Groww Mutual Fund has introduced India's first Nifty Non-Cyclical Consumer Index Fund, marking a significant milestone in the country's investment landscape.

What Are Non-Cyclical Stocks:

  • Non-Cyclical stocks are resilient stocks that perform well regardless of economic instability.
  • They cater to daily necessities like food, LPG, power, etc., prioritizing consumer needs and essential services.

Understanding the Difference between Cyclical Stocks vs. Non-Cyclical Stocks:

Cyclical Stocks:

  • Directly impacted by economic changes, dependent on business cycle fluctuations.
  • Season-specific demand influences stock prices.
  • Buying during off-seasons and selling during high-demand periods maximizes profits.

Non-Cyclical Stocks:

  • Products in continuous demand, irrespective of economic cycles.
  • Regular goods like food and water form daily necessities.
  • Less affected by economic instability, offering stability and consistent returns.

Final Words:

  • Non-Cyclical stocks, also known as defensive stocks, remain resilient despite economic fluctuations.
  • Utility companies and essential services exemplify non-cyclical stocks, ensuring continuous demand.
  • Both cyclical and non-cyclical stocks require thorough research and carry inherent risks and returns.

India's first Nifty Non-Cyclical Consumer Index Fund

Objective and Strategy:

  • The fund mirrors the performance of the Non-Cyclical Consumer Index–TRI, aiming for long-term capital growth.
  • Its strategy involves investing in securities of the Nifty Non-Cyclical Consumer Index, maintaining proportional weightage.

Investment Options:

  • Investors can initiate a Systematic Investment Plan (SIP) with a minimum investment of Rs 100, with subsequent increments in multiples of Re 1.
  • Lump sum investments are accepted with a minimum of Rs 500, followed by increments in Re 1 units.

Index Composition and Rationale:

  • The index consists of leading stocks from consumer sectors such as Fast-Moving Consumer Goods (FMCG), Textiles,
  • Selection criteria prioritize companies with substantial market capitalization, reflecting established consumer brands.

Suitability for Investors:

  • This fund caters to investors seeking consistent wealth accumulation by tapping into the growth potential of renowned consumer brands.
  • The focus on non-cyclical sectors offers stability and resilience amid economic fluctuations.

Asset Allocation:

  • The fund predominantly allocates 95-100% of its assets in equities and equity-related securities of companies involved in or benefiting from consumption activities.
  • A minor portion, between 0-5%, may be allocated to debt instruments or money market securities.

Exit Load:

  • An exit load of 1% applies to units redeemed or switched within 30 days from the date of allotment.
  • No exit load is applicable if units are redeemed or switched after the initial 30-day period.

PRACTICE QUESTION

Q. Which of the following statements accurately describes the characteristics of Cyclical and Non-Cyclical Stocks?

a) Cyclical stocks experience consistent demand throughout economic cycles, while Non-Cyclical stocks are directly influenced by seasonal fluctuations.

b) Cyclical stocks are resilient to economic changes and offer stable returns, while Non-Cyclical stocks are impacted by business cycle fluctuations.

c) Cyclical stocks are directly impacted by economic changes and experience fluctuations in demand based on business cycles, while Non-Cyclical stocks exhibit continuous demand regardless of economic cycles.

d) Cyclical stocks are immune to seasonal demand variations, while Non-Cyclical stocks are heavily influenced by off-season fluctuations.

Answer:

c) Cyclical stocks are directly impacted by economic changes and experience fluctuations in demand based on business cycles, while Non-Cyclical stocks exhibit continuous demand regardless of economic cycles.

SOURCE: ECONOMIC TIMES