DSP Launches Nifty Healthcare Index Fund NFO: Sectoral Passive Investment Opportunity

The NFO is an open-ended index fund that aims to mirror the performance of the Nifty Healthcare Index. It provides investors with an opportunity to gain exposure to a diverse basket of healthcare companies through a passive investment strategy. The fund will invest in equity and equity-related instruments that form part of the Nifty Healthcare Index, offering a convenient route to participate in the long-term potential of India’s growing healthcare sector. While it is a passively managed scheme, the fund manager will aim to minimise tracking error. This NFO is ideal for investors seeking long-term capital appreciation in the healthcare space without actively managing their investments.

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Key Features of DSP Nifty Healthcare Index Fund

• Opening Date: 2nd June 2025
• Closing Date: 16th June 2025
• Exit Load: Not specified
• Minimum Investment: ₹100 and in multiples thereof thereafter

Objective of DSP Nifty Healthcare Index Fund

The objective of the DSP Nifty Healthcare Index Fund NFO is to generate returns that are in line with the performance of the Nifty Healthcare Index, subject to tracking error. The scheme does not aim to outperform the index but to replicate its performance, offering investors a passive route into the healthcare sector.

Investment Strategy of DSP Nifty Healthcare Index Fund

• The scheme follows a passive investment strategy, aiming to replicate the Nifty Healthcare Index.
• Investments will be made in the same proportion as the underlying index.
• Rebalancing will be done periodically to reflect index changes and investor inflows/outflows.
• A portion of the fund may be held in cash and equivalents to manage liquidity needs.
• Use of derivatives may occur when equities are unavailable or for short-term rebalancing.
• Tracking error will be managed actively to align as closely as possible with the index.

Risks Associated with DSP Nifty Healthcare Index Fund

• Market Risk: As it is passively managed, it will not take defensive positions during market downturns.
• Tracking Error: The fund may not perfectly replicate the index due to expenses, corporate actions, and cash balances.
• Sector Concentration Risk: Being healthcare-focused, the scheme is vulnerable to sector-specific fluctuations.
• Derivative Risk: Use of derivatives can lead to disproportionate losses.
• Regulatory Risk: Changes in taxation or index composition may affect returns.
• Equity Volatility: Price swings in constituent stocks can significantly impact NAV.

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Risk Mitigation Strategy by DSP Nifty Healthcare Index Fund

To manage risks, the NFO will adopt strategies such as periodic portfolio rebalancing and active monitoring of index constituents to reduce tracking error. Although it passively tracks the Nifty Healthcare Index, the fund will maintain liquidity by keeping a small portion in cash or equivalents. Derivatives will be used selectively and only in scenarios where equity stocks are unavailable or adjustments are needed temporarily. The fund will strive to keep the tracking error minimal, although market volatility and external factors may impact this effort. The fund manager’s diligence in executing index-aligned trades also serves to mitigate deviation from benchmark performance.

What Type of Investor Should Invest in DSP Nifty Healthcare Index Fund?

• Investors seeking long-term capital appreciation through healthcare sector exposure.
• Those looking for a passive investment route with low-cost index replication.
• Individuals are comfortable with sector-specific concentration risks.
• Investors with a moderate to high-risk appetite.
• Anyone aiming to diversify their equity portfolio with a theme-based allocation.