In past one year, the markets have taken the\ninvestors on a roller coaster ride, with the recent biggest monthly fall of 177\npoint in Nifty and 600 points fall in Sensex. Due to a host of domestic and\ninternational macro and micro economic factors the markets are spiralling\ndownward. <\/p>\n\n\n\n
However, it is offering opportunities to do\nvalue buying. But it\u2019s getting challenging as the current pricing do not\njustify the muted earnings of the companies. Thus, actively managed funds seem\nlike they have taken a back seat for now. As investors are losing money and are paying\nhigher charges for actively managed funds, which is not going down well with\ninvestors. <\/p>\n\n\n\n
Plus, investors are not ready to bear any\nmore risk for higher returns, instead are preferring moderate returns in line\nwith the benchmark index through passive management, i.e. in Index Funds.<\/p>\n\n\n\n
[Read: <\/strong>Should You Be Investing In Passive Funds Now?<\/a>]<\/strong><\/p>\n\n\n\n Index funds basically as per the categorisation norms<\/a> are described as funds that will invest a minimum 95% of total assets of the scheme in securities of a particular index. They have a portfolio comprising of stocks of securities in line (weightage composition-wise) with that of the tracking index. This tracking is called indexing, a passive form of fund management. <\/p>\n\n\n\n The fund manager tries to build and match the portfolio, whose holdings mirror the securities of a standard index. An index constitutes, as a representative collection of stocks that are important for the economy. <\/p>\n\n\n\n Index stocks are selected on a free-float basis and adjustments are\nmade from time to time, keeping in view market conditions, market\nopportunities, applicable regulations and economic factors. Stock must be\navailable for trading in the futures and options segment to be eligible for\ninclusion in an index. Besides, market capitalisation, liquidity and trading\nfrequency are other criteria. <\/p>\n\n\n\n The idea is that by mimicking the profile of the benchmark index, an index fund will match its performance as well. \u00a0Hence, it does not require active management, so the overall cost (expense ratio and other fees) are low as compared to an actively managed fund, making it more cost-efficient. <\/p>\n\n\n\n In brief, index funds are:<\/p>\n\n\n\n As mentioned earlier, investors are not happy to pay higher charges for losses and, hence choosing a passive investment. \u00a0Seeing this change, several fund houses launched index funds. Motilal Oswal Mutual Fund<\/a> has recently launched 4 index funds that will replicate Nifty indices subject to a tracking error. <\/p>\n\n\n\n Mr Pratik Oswal, Head of passive funds, Motilal Oswal AMC, explained the rationale behind launching these index funds in an interview taken by a representative of ETMutualFunds.com. <\/p>\n\n\n\n \u201cWe see huge opportunities in the passive investment space. I think, over time, a lot of customers will move to passive because of various reasons. In India, the supply of passive is very less right now. Our idea to launch four passive schemes is to create building blocks for people to do asset allocation. Basically, if I had to launch one scheme at a time, that would look like more of a selling thing. But I had to launch four schemes together because I know not everyone should buy same. They should\u00a0have a choice to suit their risk profile.\u00a0 Further, he even presented his views about\nindex funds, \u201cI think the reason why\nindex funds are great is that they are extremely democratic, stocks which will\ndo well will get a higher weightage overtime and stocks which do not do well\nwill get kicked out of the index. And, it is a very good long-term investment.\nFor instance, if you had to invest for your retirement, it is very hard to\nchoose a fund manager today because funds go down, fund managers change. So,\nfor long term investments, index funds make more sense. <\/em><\/p>\n\n\n\n I see\na lot more allocation happening in the passive space in the next five years. A\nlot of investors want these sorts of products, but they don\u2019t have access to\nthem because not a lot of AMCs want to get into this space. Our idea is to be\ncustomer-centric.\u201d<\/em><\/p>\n\n\n\n Mr Pratik even pointed out that the\ninvestors do not understand the difference between active and passive and the\ninvestor\u2019s mindset. \u201cAlso, a lot of\ninvestors in our country don\u2019t really understand what active and passive is.\nThey do not know what outperformance is, alpha, beta is. I would say 98 per\ncent of the investors in India just wants to outperform bank fixed deposit. I\nam providing a vehicle where they can do that at a very low cost. <\/em><\/p>\n\n\n\n Also, I think managing the psychology of investors here is very difficult because people do not respond well to underperformance. You would ideally sell your underperforming investment to buy outperforming investment and then you will do it again. But in case of passive funds, as they never underperform, there is no reason to sell them. So, the stickiness of passive funds is much higher than actively managed funds.\u201d <\/em><\/p>\n\n\n\n Finally, he spoke about each fund\u2019s suitability, \u201cThe whole point of launching four funds is to give people an option\nand to help them to identify which one works for them. For a first-time\ninvestor or someone who wants a very low risk and high diversification, Nifty\n500 Fund is absolutely phenomenal. There are two choices- Nifty 50 and Nifty\n500 – if you are looking at large-cap stocks. Nifty 500 has the stability of a\nlarge-cap index. Around 80 per cent of the money in index is in large-cap\nstocks, and 20 per cent in mid-cap and small-cap stocks.<\/em> So, you have the stability of a large-cap and growth of a mid and\nsmall-cap. It is the only multi-cap index fund in India. A\nsmall-cap 250 is quite unique. It is the only pure small-cap fund in the country.\nIdeally if you think, today might not be the right time to launch an NFO\nbecause of how poor the market is but if you look at it from valuation\nperspective, I believe it is great to buy small and mid-cap. An investor should\nalso have the required risk appetite.<\/em><\/p>\n\n\n\n Fourth\nis mid-cap index fund. Anyone who wants to play with valuations and growth, mid-cap\nfund is great. Seven out of 10 fastest companies in India have come from the\nmid-cap index. And if you want to play the mid-caps going large caps, you may\ninvest in it.\u201d<\/em><\/p>\n\n\n\n Investment\nstrategy<\/strong>: As per the investment strategy, each of\nthe funds will follow a passive investment strategy and invests in stocks in a\nproportion that is as close as possible to the weightages of these stocks\npresent in the respective index. <\/p>\n\n\n\n The fund manager, Mr Swapnil Mayekar will not\nmake any judgments about the investment merit of index nor will it attempt to\napply any economic, financial or market analysis. It would revolve around\nreducing the tracking error to the least possible through regular rebalancing\nof the portfolio, considering the change in weights of stocks in the indices as\nwell as the incremental collections \/redemptions from the Scheme.<\/p>\n\n\n\n Additional\nInformation<\/strong>:<\/p>\n\n\n\n New\nFund Offer opens on<\/strong> August 19, 2019 <\/p>\n\n\n\n New\nFund Offer Closes on<\/strong> August 30, 2019<\/p>\n\n\n\n Min. Investment: <\/strong> Rs 500 and of Re 1 thereafter.<\/p>\n\n\n\n Exit\nload<\/strong>: 1% applicable if redeemed before 3 months\nfrom the date of purchase. <\/p>\n\n\n\n Plans:<\/strong> Regular and Direct under the growth option.<\/p>\n\n\n\n Outlook:<\/strong><\/p>\n\n\n\n Index funds are good investment avenues for mature markets like the US, where in to generate an Alpha is not possible as it has reached its stagnation. But for markets like India, there are opportunities for value buying as government initiatives, like Make in India do provide room for various companies for growth and development. <\/p>\n\n\n\n Besides, in terms of performance, actively managed Large-cap funds<\/a>, Large & mid-cap funds<\/a> and multi-cap funds<\/a> <\/a>is better as compared to passive index funds, despite the short-term volatility. <\/p>\n\n\n\n (Data as on 26-Aug-2019)
For instance, someone who is risk-averse might prefer Nifty 500 fund, whereas someone who is more risk-loving or those who want to take advantage of some of the valuations in the market today might go for midcap or a small-cap fund.\u201d <\/em><\/p>\n\n\n\n
\n
\nNifty Bank Index is a pure sectoral fund. Bank index has grown the most. It is\none of the highest performing indices in our country. But it also comes with a\nlot of risks since it is very volatile. But if someone who wants to buy the\nbanking industry, this is a good option. <\/em><\/p>\n\n\n\n\n\t\n
\n <\/td>\n Absolute returns (%)<\/strong><\/p><\/td>\n CAGR (%)<\/strong><\/p><\/td>\n <\/tr>\n \n <\/td>\n 3 Month Return<\/strong><\/p><\/td>\n 6 Month Return<\/strong><\/p><\/td>\n 1 Year Return<\/strong><\/p><\/td>\n 3 Year Return<\/strong><\/p><\/td>\n 5 Year Return<\/strong><\/p><\/td>\n 10 Year Return<\/strong><\/p><\/td>\n <\/tr>\n \n Index Funds <\/strong><\/p><\/td>\n -29.6<\/p><\/td>\n -7.6<\/p><\/td>\n -14.9<\/p><\/td>\n 3.8<\/p><\/td>\n 5.4<\/p><\/td>\n 15.1<\/p><\/td>\n <\/tr>\n \n Large & Mid Cap <\/strong><\/p><\/td>\n -24.8<\/p><\/td>\n 0.5<\/p><\/td>\n -10.3<\/p><\/td>\n 5.9<\/p><\/td>\n 8.7<\/p><\/td>\n 20.6<\/p><\/td>\n <\/tr>\n \n Large Cap Fund <\/strong><\/p><\/td>\n -25.0<\/p><\/td>\n 1.8<\/p><\/td>\n -6.8<\/p><\/td>\n 6.0<\/p><\/td>\n 7.4<\/p><\/td>\n 16.7<\/p><\/td>\n <\/tr>\n \n Multi Cap Fund <\/strong><\/p><\/td>\n -28.0<\/p><\/td>\n -1.2<\/p><\/td>\n -11.6<\/p><\/td>\n 5.3<\/p><\/td>\n 7.8<\/p><\/td>\n 20.5<\/p><\/td>\n <\/tr>\n<\/table>\n<\/center>\n\n\n\n
(Source: ACE MF)<\/p>\n\n\n\n