Mirae Asset Investment Managers (India) has recently launched the Mirae Asset BSE Select IPO ETF and Fund of Fund (FoF), offering investors an opportunity to gain diversified exposure to newly listed companies.
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While the new fund offer (NFO) for Mirae Asset BSE Select IPO ETF is open until March 5, 2025, the NFO for Mirae Asset BSE Select IPO ETF Fund of Fund will be there till March 11, 2025.
Rationale behind the fund
Siddharth Srivastava, Head of ETF Product & Fund Manager at Mirae Asset Investment Managers (India), explained the fund’s objective: “IPOs and spin-offs attract investors looking to participate in new companies with reasonable growth potential. However, these investments come with inherent risks. A portfolio approach can help mitigate these risks and provide a structured way to invest in new listings.”
Srivastava highlighted that the fund aims to offer a disciplined and diversified way to invest in IPOs across various industries, including fintech, auto, e-commerce, healthcare, and new-age businesses.
“Typically, these newly listed companies have lower representation in both passive and active funds. This fund provides structured exposure to such companies post-listing,” he added.
How this fund differs from other equity mutual funds
The Mirae Asset BSE Select IPO ETF and FoF will track IPOs and spin-offs that fall within the top 500 companies by market capitalisation.
“New listings will be considered for inclusion only after three months of listing to avoid initial volatility,” Srivastava noted. “Additionally, a stock capping of 5% will be applied to ensure diversification, and stocks will remain in the index for five years.”
Unlike active equity mutual funds, which may or may not participate in an IPO depending on the fund manager’s view, this ETF follows a rule-based approach.
“Active funds typically hold IPO stocks in a small proportion, whereas our fund is solely focused on IPOs and spin-offs based on defined criteria,” he added.
India’s IPO market outlook
India’s IPO market has seen significant growth in recent years.
“Since 2016, private equity and venture capital investments worth over $300 billion have been made in the unlisted space through nearly 9,000 deals. Many of these investments seek exits within 5-7 years, with IPOs being a preferred route,” Srivastava explained.
India currently ranks third globally in terms of the number of unicorns, with over 70 such companies.
“With a strong pipeline of upcoming IPOs and an increasing trend of spin-offs to unlock shareholder value, we expect steady traction in the IPO and spin-off market in the medium to long term,” he added.
Criteria for stock inclusion in the BSE Select IPO Index
The BSE Select IPO Index follows a structured inclusion process.
“On a quarterly basis, BSE prepares a list of the top 500 companies by full market capitalisation. IPOs and spin-offs that have completed three months of listing and meet the basic liquidity criteria are added to the index,” Srivastava explained.
“The index excludes micro-cap and SME companies and retains stocks for five years unless their ranking falls below 600 in terms of market capitalisation or trading value. The index is reviewed quarterly to ensure timely inclusion of new IPOs and spin-offs,” he added.
Who should invest?
This fund is best suited for long-term investors looking to enhance their portfolio with exposure to newly-listed companies. “Most core portfolios lack sufficient exposure to recent IPOs and spin-offs. This fund can serve as a satellite allocation,” Srivastava stated.
However, he cautioned that the fund may experience higher volatility compared to broad-based indices.
“Investors should have a minimum horizon of five years. This is not a suitable option for IPO traders, as it invests in IPOs only after three months of listing,” he emphasised.
Future of IPO-focused funds
While Mirae Asset is among the first AMCs to launch an IPO-focused passive fund, Srivastava believes that more such products may emerge.
“If the IPO theme gains traction, we may see other fund houses launching similar funds,” he said.
