NSE Indices Ltd., an NSE group company, has today launched 2 dynamic asset allocation indices namely ‘NIFTY 50 & Short Duration Debt – Dynamic P/E index’ and ‘NIFTY 50 & Short Duration Debt – Dynamic P/B index’. Within these indices, the asset allocation between debt and equity is dynamically managed based on a model that compares the current Price-Earnings ratio (P/E) or Price-Book ratio (P/B) with historical Price-Earnings ratio (P/E) or Price-Book ratio (P/B) of NIFTY 50 in the previous 7 years.
The ‘NIFTY 50 & Short Duration Debt – Dynamic P/E’ and ‘NIFTY 50 & Short Duration Debt – Dynamic P/B’ indices capture the performance of portfolios where asset is allocated among following components
1) Equity component – NIFTY 50 TR Index
2) Debt component – NIFTY Short Duration Debt Index
3) Equity Arbitrage Component – Long NIFTY 50 TR Index and Short NIFTY 50 Futures Index
4) CBLO Component – NIFTY 1D Rate Index
In these indices, the maximum allocation to equity is 80% and minimum allocation is 65%. In case, the model prescribes an allocation to equity that is lower than 65%, equity arbitrage is used to maintain the equity allocation at 65% in these indices. In case arbitrage is used, 10% of the asset allocated to NIFTY 50 Futures Index (short) is allocated to NIFTY 1D Rate Index (CBLO component).
“The two newly launched NIFTY Dynamic Asset Allocation indices employ a dynamic, rule-based asset allocation mechanism, designed to tactically combine equity and debt. The unique asset allocation model alters the index’s exposure to equity based on whether equity market presently appears to be relatively expensive or cheaper, thereby optimizing the risk-return ratio for investors. These indices also appropriately fill the gap due to the absence of a relevant benchmark for performance comparison of the popular dynamic asset allocation category offered by mutual funds in India” said Mukesh Agarwal, CEO, NSE Indices Ltd.
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