India's First Nifty Non-Cyclical Consumer Index Fund: UPSC

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:

SOURCE: ECONOMIC TIMES