The Indian mutual fund industry seems to be going through a transition phase.
With many actively managed funds struggling to keep pace with their respective benchmark indices over the last few years, investors have started shifting focus towards passively managed funds. The idea is to generate returns in line with the markets.
Seeing the increase in attention towards passive strategy, some mutual fund houses too have added quite a few passive funds to their product bucket this year. And I believe this is just the beginning.
Indian mutual funds have together launched 4 index funds and 10 equity index Exchange Traded Funds (ETFs) so far in CY 2020. Notably, there were just around 34 index funds and 50 equity index ETFs until last year.
The fund houses have started looking beyond the benchmark market indices and are offering passive strategy across different market cap index, themes and sectors.
Axis Banking ETF is one of the new entrants in the passive segment, that aims to track the NIFTY Bank Index. Notably this is the 4th Banking ETF launched since August 2020. HDFC Banking ETF, UTI Bank ETF, and SBI-ETF Nifty Pvt Bank are the other Banking focused ETFs launched in the recent past.
ETFs are designed to provide exposure to an index or a basket of securities that trade on the exchange like a single stock. They can be bought and sold on the exchange at prevailing prices that are usually close to the day end NAV of the Scheme.
Axis Banking ETF is launched with an objective of providing returns before expenses that closely correspond to the total returns of the NIFTY Bank Index subject to tracking errors. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.
Table: Details of Axis Banking ETF
|Type||An open-ended Scheme replicating/tracking NIFTY Bank Index||Category||Exchange Traded Fund|
|Investment Objective||To provide returns before expenses that closely correspond to the total returns of the NIFTY Bank Index subject to tracking errors. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.|
|Min. Investment||Rs 5,000 and in multiples of Re 1 thereafter||Face Value||The units will have a face value of Rs. 100/- each and will be issued at a premium, if any.
Value of each unit will be approximately equal to 1/100th of the value of NIFTY Bank Index on the date of allotment of units.
|Entry Load||Not Applicable||Exit Load||Nil|
|Fund Manager||Mr Ashish Naik||Benchmark Index||NIFTY Bank Index (Total Returns Index)|
|Issue Opens:||October 16, 2020||Issue Closes:||October 29, 2020|
|Listing||The Units of the Scheme is proposed to be listed on National Stock Exchange of India Limited, and BSE Limited.|
(Source: Scheme Information Document)
Investment strategy – Axis Banking ETF:
Axis Banking ETF would invest in stocks comprising the underlying index (NIFTY Bank Index) and endeavor to track the benchmark index. The Fund may also invest in debt & money market instruments, in compliance with regulations to meet liquidity and expense requirements.
Under normal circumstances the scheme will invest at least 95% of its assets in securities covered by the NIFTY Bank Index. A very small portion (0% to 5% of its assets) may be kept in debt and money market instruments.
About NIFTY Bank Index:
NIFTY Bank Index comprises of 12 most liquid and large capitalised Indian Banking stocks (both private and PSU banks), and acts as a benchmark to capture the capital market performance of Indian Banks.
Image: Banks weight distribution in the Index
(Source: NIFTY Bank Index )
Axis Banking ETF endeavors to invest in stocks forming part of the underlying index in the same proportion as per the index to the extent possible. It will primarily follow a passive investment strategy, except to the extent of meeting liquidity and expense requirements.
The scheme will invest in the securities included in its underlying index regardless of their investment merit. The AMC does not attempt to individually select stocks or to take defensive positions in declining market.
In case of any change in the index due to corporate actions or change in the constituents of NIFTY Bank Index (as communicated by IISL), the relevant investment decision will be determined considering composition of NIFTY Bank Index. The scheme may also invest a small portion in Debt & Money Market Instruments.
As part of its investment process, the scheme may also use derivative instruments (to the extent of 5% of the Net Assets) such as index futures and options, as permitted by Regulations / guidelines issued by SEBI from time to time. It may use derivatives for restricted purposes as permitted by the regulations.
Who will manage Axis Banking ETF?
Axis Banking ETF will be managed by Mr Ashish Naik.
Ashish Naik is designated as Fund Manager – Equity at Axis Asset Management Company Ltd. He is a MBA from XLRI, Jamshedpur and B.E. Computers from Mumbai University. He is also a Certified CFA charter holder, and FRM (GARP). Ashish has over 13 years of experience out of which over 8 years of experience as an Equity Analyst. His previous experience includes 2 years with Goldman Sachs as part of India Financials research team and Hexaware Technologies as Software Engineer.
Fund outlook – Axis Banking ETF:
In India, ETFs are slowly catching up with the global trend of investing in mutual funds. With most of the actively managed funds having underperformed over the last few years, passively managed ETFs have become an alternate choice for investors. Fund houses are making an attempt to provide more options for investors to choose from.
Being a passively managed fund, Axis Banking ETF will closely track the performance of NIFTY Bank Index by mirroring its portfolio, without any analysis on stocks. Accordingly, the fund’s portfolio will be restricted to 12 bank stocks that are constituents of the index.
Sector focused funds follow concentrated investment approach towards specific sectors and are high risk investment proposition. They are suitable only for aggressive investors who understand the sector well, and can take timely investment calls. Axis Banking ETF’s performance will rely solely on the performance of the underlying NIFTY Bank Index.
Still, one should not ignore the current pressure on the banking sector due to the extended loan moratorium offered to borrowers during the pandemic lock-down. Many banks may even witness a rise in non-performing assets. The effect may be felt in the near term.
One should have an investment time horizon of at least 5 to 7 years while investing in Axis Banking ETF.
This article first appeared on PersonalFN here