ETF nav priceIndiabulls Mutual Fund has joined the bandwagon of passively managed funds with an Exchange Traded Fund (ETF) – Indiabulls Nifty 50 ETF. The New Fund Offer opened for subscription on April 8th and will close on April 22, 2019; the fund will reopen within the five business days from the date of allotment.

Passive funds follow the underlying stocks closely. Meaning the fund manager will invest all the money as per constituents of an index. This fund can be bought and sold on the stock exchange like any other company’s shares. In developed markets, such funds and strategies have attracted more investments compared to the actively managed funds. In India, a stream of thought is emerging which believes the similar scenario will play out at home as well. And in near future, passive funds like ETFs and index funds will gain more popularity. That could be the reason we see fund houses adding at least one such fund in their product basket.

There are total of 46 Nifty focused funds in the industry having total AUM of Rs 68,000 crore among which the SBI ETF Nifty 50 have the highest AUM of Rs 46,000 crore. Exchange Traded Funds  (ETF) have beaten large cap funds in the last year, Kotak NV 20 ETF is a top performing ETF which has given highest returns of 23.21%. The top performing large cap fund, HDFC Top 100, has delivered returns of ~14% in the past year. In addition to the outperformance, ETFs charge very low expense ratio in the range of 0.5 – 1% while large cap funds charge average expense in the range of 1.5-2%.

Even as the ETFs charge lower expenses, they fail to deliver similar returns as that of the underlying index – know as tracking error. This is owing to the rebalancing of the portfolio that needs to be done when the index changes constituents. Rebalancing comes with a cost which adds to the tracking error. Also a fund manager would need to maintain some amount in cash to feed any redemption. Which would further reduce fund’s performance and increase the tracking error. A fund with a lower tracking error and lower expense would be a right fund to choose.

Asset Allocation

Under normal circumstances, the asset allocation of the Scheme would be as follows:

As per the mandate this fund will allocate all its assets to constituents of Nifty 50 index. The fund house will endeavour to keep the tracking error within the range of 2% on an annualised basis in the scheme as against the returns of the benchmarked Index.

Indiabulls Nifty 50 ETF is benchmarked against Nifty 50 Total Return Index. The index has delivered 16.70% returns on 1-year basis and 16.35% returns on 3-year basis as on 29th March 2019.

The fund will be jointly managed by – Veekesh Gandhi (Senior Fund Manager- Equity) and Malay Shah (Head Fixed Income). Gandhi has more than 12 years of experience in Banking and Capital Markets field. He is managing several other funds like Indiabulls Arbitrage Fund, Indiabulls Bluechip Fund, Indiabulls Tax Savings Fund, Indiabulls Equity Hybrid Fund and Indiabulls Savings Income Fund.

Shah has 15 years of experience in Finance. He is managing several other funds of the fund house like, Indiabulls Liquid Fund, Indiabulls Ultra Short Term Fund, Indiabulls Arbitrage Fund, Indiabulls Value Discovery Fund etc.

Tax Impact

Taxation for ETF funds will be like the equity funds, for Long Term Capital Gains tax of 10% for equities if held for more than one year and gains exceeding Rs 1 lakh. And Short Term Capital Gains tax of 15% will be levied for less than one year holding period.

Key features of the fund

NFO Period:- 8th-Apr-2019 to 22nd-Apr-2019

Type of Scheme:- An Open Ended Scheme tracking Nifty 50 Index

Benchmark: – Nifty 50 Total Return Index

Min Application Amount: – Rs 5,000/- and in multiples of Re 1/- thereafter.

Entry/Exit Load: – Nil.

Risk Profile: – Moderately High Risk

Investor Suitability:

– This product is suitable for investors who are seeking

– Long term capital appreciation;

– Investment in securities covered by Nifty 50 Index

Rupeeiq Take: The past year was a volatile one. During this period, we saw ETFs outperforming the large cap funds. While this can not be taken as a reference point, it proves the importance of diversification. We believe actively managed funds will keep generating some alpha over benchmark, at least in the foreseeable future. Therefore, investors can use ETFs to balance the risk in their portfolios. Such funds are also suitable for first time equity investors.

Author
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com