ICICI & SBI launch Nifty 200 Quality 30 funds: Worth It?

ICICI's fund opened for public subscription on May 21, 2025, and will remain open until June 4, 2025, while SBI's offering hit the market earlier — on May 16 — and will close on May 29, 2025.

Interestingly, both the fund houses already offer ETFs (exchange-traded funds) based on this index. However, the launch of these index funds now makes them accessible to a wider set of investors, especially those without a demat account or those looking to invest via SIPs .

Since both funds passively track the Nifty 200 Quality 30 index, let's shift our focus to the index and see what it is and how it has performed.

About the index

How are the stocks selected?

The Nifty 200 Quality 30 index picks the top 30 companies from the broader Nifty 200 based on their 'quality' scores. These scores are calculated using three key factors:

• Return on equity (ROE)
  
• Financial leverage (Debt-to-equity ratio)
  
• Earnings stability, measured by the variability in EPS growth over the past five years.

After ranking companies based on these quality scores, the index gives more weight to companies with better scores and larger sizes (based on market value). However, to avoid overdependence on any single stock, no company has more than 5 per cent weight in the index.

The index is rebalanced semi-annually, once in June and again in December.

Other funds or ETFs tracking this index

Currently, there are two index funds and three ETFs tracking Nifty 200 Quality 30 index. The table below mentions these funds/ETFs.

Tracking error isn't a concern here, as it remains low across all the funds and ETFs tracking this index. However, what does stand out is that all of them have delivered lower returns since their launch as compared to the parent index over the same period.

Sector and stock composition

The Nifty 200 Quality 30 index is highly concentrated.

Just three sectors — FMCG (30.3 per cent), Information Technology (23.3 per cent) and Capital Goods (12.5 per cent) — make up 66 per cent (2/3rd) of the total weight, while the top five sectors have an 83 per cent weight, significantly higher than the 65 per cent seen in the regular Nifty 200 index further signalling higher concentration of this index.

Returns

Though the Nifty 200 Quality 30 index officially came into existence in April 2018, its back-tested data stretches all the way back to 2005. So, we rolled up our sleeves and analysed five-year rolling returns (calculated daily) over the last 10 years, and stacked them up against its parent, the Nifty 200 TRI.

The outcome? Pretty impressive. The Quality index beat its parent nearly 79 per cent of the time, with an average outperformance of 1.8 percentage points. Not bad at all.

But here's the catch: These are back-tested numbers, not real-time results. They give a sense of how the strategy might have worked, but live returns since the index's launch paint a more reliable picture.

And that picture is quite different. Since 2018, the Quality index has managed to outperform the Nifty 200 TRI on five-year rolling returns only around 30 per cent of the time. To dig deeper, we also split this period into bullish and bearish phases to see how the index stacked up against its parent in different market moods.

Bear phases are defined as periods when the broader market, represented by the Nifty 50 TRI, falls by 15 per cent or more. Bull phases refer to the period from the market bottom to the next peak.

The Nifty 200 Quality 30 index significantly underperformed its parent index during the post-Covid rally from March 2020 to October 2021. In the other two periods, its performance was largely in line with that of the parent index.

In other words, the index has either trailed or merely matched the returns of its parent — but has it at least cushioned the blow during market downturns? Let's take a look.

The Nifty 200 Quality 30 index did hold up much better during the Covid-19 crash, falling nearly 10 per cent less than its parent index. However, its performance in subsequent downturns has been less reassuring.

So, while it showed some resilience once, the overall picture is mixed, making it hard to say it consistently offers better downside protection.

Overall performance

Now, let's take a step back and look at how Nifty 200 Quality 30 has performed against its parent index (Nifty 200) since 2018.

While the Nifty 200 Quality 30 TRI has clocked an annualised return of 13.7 per cent since launch, that's a shade below its parent index, the Nifty 200 TRI, which returned 14.3 per cent.

Should you invest?

As we've seen, the index is heavily skewed towards a few sectors, particularly FMCG, which alone makes up 30 per cent. This concentration means its performance is closely tied to how that sector fares.

Despite being designed around the idea of 'quality', the index has delivered lower or similar returns compared to its parent (Nifty 200). Even during market downturns, the downside protection hasn't been compelling enough to justify the high concentration risk.

However, those keen on exploring this factor-based approach may consider a modest allocation, not more than 5 per cent of their portfolio.

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