Sachin Bansal owned Navi MF launches Nifty 50 Index Fund with low expense ratio (NFO-Review)
Sachin Bansal (Co-Founder, Flipkart) owned Navi Mutual Funds has launched Nifty 50 Index Fund with low expense ratio of 0.06%. Navi Nifty 50 Index Fund would invest in the stocks that are part of Nifty 50 Index. This index has delivered 11% annualized returns in the last 25 years since inception and 15% annualized returns in the last 5 years. While investors prefer to invest in index funds, these should be considered as long-term investments. Should you invest in Navi Nifty 50 Index Fund? What are the risk factors in this mutual fund scheme?
Navi Nifty 50 Index Fund – NFO issue details
This is an open-ended index fund replicating / tracking Nifty 50 Index.
This fund is open now for subscription and would close on 12th July 2021. It would re-open after 5 working days for further subscription, hence there is no hurry to invest now.
One can invest minimum of Rs 500 and in multiples of Rs 100 there-off.
There is no entry and exit load.
The expense ratio is 0.06% which is lowest among the mutual fund industry for index funds.
Since the fund invest in NIFY50 stocks this is classified as high-risk scheme.
Benchmark of the scheme is NIFTY 50 TRI.
What is the investment objective of Navi Nifty 50 Index Fund?
The investment objective of the scheme is to achieve return equivalent to Nifty 50 Index by investing in stocks of companies comprising Nifty 50 Index, subject to tracking error. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this index fund?
Here is how the index fund would invest:
1) It would invest 95% to 100% in NIFTY50 stocks
2) It would invest up to 5% in debt and money market instruments.
What does Nifty 50 Index contain?
The NIFTY 50 index is a well-diversified 50 companies index reflecting overall market conditions. NIFTY 50 Index is computed using free float market capitalization method.
NIFTY 50 can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured Products
Here is the list and their weightage in this index by sector and top constituents as of now.
Why to invest in Navi Nifty 50 Index Fund?
Here are a few reasons to invest in such index funds.
1) This fund invests in Nifty 50 index that has diversified portfolio of stocks. This would help for portfolio diversification.
2) This index has provided stable returns in the last 5 years and since inception. If you observe, this index gave 15% annualized returns in the last 5 years and 11% annualized returns since inception.
3) This fund comes with low expense ratio of 0.06% which is lowest among the index funds.
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) This index fund invests in 50 stocks which is like investing in direct equity (as it invests in specific stocks). Any investment in direct equity is considered as high risk.
2) It invests up to 5% in debt instruments. There is interest rate risk, credit risk, liquidity risk etc., with corporate debt instruments.
3) Though this fund indicated the low expense ratio of 0.06%, there is no guarantee that it would stick to it. It can always increase to any number that is committed in the SID of the scheme (1%) in future. We could see this in couple of AMCs increasing the expense ratio in the last 1 year.
4) Since this is new fund, we would not know the tracking error of the index fund.
5) Investors should read the SID / KIM / prospectus before investing in such mutual funds.
How is the Performance of Nifty 50 Index?
Now, let us look at the performance of the underlying index where this fund would be going to invest. Total returns include dividends, interest and rights received by the shareholders (if any).
Should you invest in Navi Nifty 50 Index Fund?
Navi Nifty 50 Index Fund invests in Nifty 50 stocks. This index generated stable returns and delivered 11% annualized return since inception and 15% annualized returns in last 5 years. AMC says it has lowest expense ratio of 0.06% for this index fund, however there is no guarantee it would continue with such low ratio in future too. Since it is the new fund, we do not know tracking error of this index fund. Investors should consider these points before investing in such high-risk index funds.
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