ICICI Prudential Equity Minimum Variance Fund NFO: Does it stand out?

ICICI Prudential Equity Minimum Variance Fund will be open to the public for subscription until December 2, 2024.

Here, we take a detailed look at this NFO (new fund offer) and whether it can be a good addition to your portfolio.

What is the minimum variance strategy?

The Minimum Variance strategy selects stocks that have the least variation in price movement.

In other words, it picks low-volatile stocks, which means the strategy aims to reduce the effects of market fluctuations and build a portfolio with steadier returns.

ICICI Prudential Equity Minimum Variance Fund investment strategy

This fund will invest in companies part of the Nifty 50 index, which is home to the 50 largest Indian companies by market value.

The selection will be based on several factors, including:

• Volatility: How much a stock's price moves over time.
  
• Downside risk: The potential for losses.
  
• Maximum drawdown: The largest drop in price over a given period.
  
• Upside potential: The scope for future growth.

Minimum variance strategy's performance review

SBI Equity Minimum Variance Fund is the only active fund that can be compared with ICICI Prudential Equity Minimum Variance Fund.

While there are no passively managed funds with the same investment universe, there are similar strategies tracking two Nifty indices: Nifty 100 Low Volatility 30 TRI (three funds) and Nifty Alpha Low Volatility 30 TRI (two funds).

Therefore, since the SBI Equity Minimum Variance Fund is the only comparable fund, let's look at how its performance compares to the Nifty 50 TRI across different market phases.

What we found was that the SBI fund ticks most boxes .

• It is less volatile (look at the standard deviation row).
  
• It falls less than the Nifty 50 TRI during market pullbacks.
  
• It can also outperform during a market upswing.

ICICI Prudential Equity Minimum Variance Fund managers

• Vaibhav Dusad: He successfully manages four mutual funds , including prominent funds like ICICI Pru Bluechip and ICICI Pru Focused Equity Fund.
  
• Nitya Mishra: A qualified MBA, she has been with the fund house since 2018 and manages the ICICI Prudential Energy Opportunities Fund.

ICICI Prudential Equity Minimum Variance Fund: Should you invest?

ICICI Prudential Equity Minimum Variance Fund offers stability during market downturns and aims for better risk-adjusted returns through active management.

This makes it attractive for risk-averse investors seeking returns that are competitive with the benchmark.

However, the focus on Nifty 50 stocks means limited diversification. Secondly, the fund's performance depends heavily on the managers' ability to implement the strategy effectively. The higher costs of active management are also worth considering, especially when cheaper passive funds with similar investment strategies, such as passive low-volatility funds, are available.

Lastly, since this is a new fund, there is no historical performance to assess.

Our take

For most investors, sticking to established funds with a proven track record is a safer choice.

But if you understand the concept of minimum variance and are interested in large-cap stability, this fund could be worth exploring. Otherwise, consider flexi-cap or hybrid funds for broader diversification and stable returns.

Also read: Ask these three questions before investing in an NFO