Tata Nifty Auto Index Fund NFO – Auto Index up by 60% in 1 Year – Should you invest now?

Tata Mutual Funds has launched Nifty Auto Index Fund NFO. This fund would open for subscription on April 8, 2024. This mutual fund scheme would invest in companies that are part of the Nifty Auto Index. This index has delivered 60% returns in the last 1 year. Should you invest in Tata Nifty Auto Index Fund NFO?  What are the various risk factors associated with such funds?

Tata Nifty Auto Index Fund (NFO) – Issue details.

Tata Nifty Auto Index Fund is an open-ended equity scheme that invests in companies that are part of the Nifty Auto index. Based on the Tata Nifty Auto Index Fund SID, Here are the NFO details.

Fund Name Tata Nifty Auto Index Fund
NFO Opens 08-Apr-24
NFO closes 22-Apr-24
Scheme reopens for continuous purchase/sale Within 5 working days
Minimum Application Amount Rs 5,000 and in multiples of Rs  1 thereafter
Minimum SIP Rs 1,000 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load 0.25% if redeemed within 15 days
Risk Very High Risk
Benchmark NIFTY Auto TRI
Fund Manager Kapil Menon

What is the investment objective of this MF scheme?

The investment objective of the scheme is to provide returns, before expenses, that are in line with the performance of Nifty Auto Index (TRI), 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.

Tata Nifty Auto Index Fund NFO – Auto Index up by 60 in 1 Year – Should you invest now

What is the allocation pattern in this mutual fund?

This fund invests pattern is as follows:

Type of instruments Min % Max % Risk Profile
Securities covered by Nifty Auto Index
95% 100% Very High
Debt & Money Market Instruments including units of Mutual Funds 0% 5% Low

What does Nifty Auto Index Contains?

NIFTY Auto Index is designed to reflect the behavior and performance of the Automobiles segment of the financial market.

This Index consists of 15 listed companies. The index represents auto related sectors like Automobiles 4 wheelers, Automobiles 2 & 3 wheelers, Auto Ancillaries and Tyres.

NIFTY Auto Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value.

This index was launched in 2011, however base valuation is created from 2004.

This index would be rebalanced semi-annually.

Beta of the fund is ranging between 0.84 to 1.03 in the last 5 years. Means, it is in line with the index risk.

Current P/E of the index is 26x and dividend yield is 0.86%.

Here are the Top-10 holdings:

Past Performance of Nifty Auto index

Below is the performance of this index for the last 1 year, 5 years and since inception of 20 years (back tested data as this index was launched 13 years back only).

Why to invest in Tata Nifty Auto Index Fund NFO?

Here are the major reasons to invest in this fund

  • This index has top 15 stocks from Auto Sector which are fundamentally strong. Investing in fundamentally strong companies always rewarded investors in the long run.
  • Nifty Auto sector could be the next growth driver in India as there is strong government push Electric Vehicles (EV) policy. India aims to double its auto industry size to INR 15 Lakh Cr by the end of year 2024.
  • The underlying index delivered a 17.6% annualized return since inception in 2004.

Risk factors in such funds

One should consider some of these risk factors / negative factors before investing.

  • Since this fund invests in single sector (hence termed as sector fund), i.e. It invests only in companies that are part of the Nifty Auto index. Investing in sector mutual funds is high risk as there is concentrated only in one sector. Such sector funds can show downtrend and erode investors’ wealth in the short term.
  • This index has under-performed in the past compared to other equity funds. As an example, this fund generated zero returns between 2015 to 2021. Which investor would have patience to hold for 6 years with zero returns?
  • While there is a push from government on new EV policy, we do not know how successful this initiative would be.
  • You can refer complete risk factors of investing in this scheme to SID / KIM / NFO prospectus.

Tata Nifty Auto Index Fund NFO – Should you invest?

This fund invests in companies that are part of the Nifty Auto index. Since it invests in single sector, it is a high risk.

Auto industry is one of the most promising sectors in India now. Indian EV market could be the major force in the global car industry. Govt of India push to double auto industry size in 2024 could be a major positive factor.

High risk investors can invest in such funds for 5 + year time frame.

In our earlier article on ICICI Prudential Auto Index NFO, we have re-iterated that high risk investors can invest in such funds too. This fund generated 68% returns since Sep-2022 (1.5 years).

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