UTI Nifty Index Fund - Factors to Consider While Choosing Nifty Index Fund

Published On: 12-Mar-2020

Investment in Equities is the vehicle to participate in the long-term India growth story. Investment in Index fund is the simplest way to invest in Equities and can be core part of Equity allocation due to simplicity of investment and low cost. 

There are over 400 actively managed equity funds in India, and it is very difficult to decide which funds are most appropriate. Investors are spoiled for choice among Largecap, Multicap, Midcap, Small cap, various thematic and sector funds. Since actively managed funds are finding it difficult to beat the benchmark on consistent basis, it is very difficult to predict in advance which active fund will perform well going forward. Hence, it makes immense sense to first get exposure of Equities through an Index fund to achieve market returns.

Within Index Funds, one may take “First Easy Step” by investing in a fund which tracks the broad market and Large cap Index. 

Goal of Index investing is to get similar returns as underlying benchmark. This is achieved by holding same securities and in the same proportion as benchmark. In other words, no active sector or stock calls are taken by the passive Manager. Performance of an Index fund broadly tracks the benchmark subject to Total expense ratio (referred as cost) and tracking error. 

Index Investing is like plain vanilla ice cream of equity investing wherein investors don’t get confused from plethora of choices and focus on achieving their financial goal through a simple investment product.

Here investing in Index like Nifty 50 can be very helpful. As per Index Methodology, it is the flagship index of National Stock Exchange of Index Limited (NSE), which tracks the behaviour of 50 largest and most liquid blue-chip companies in India. Stock are selected based on pre-defined rules, specified in the index methodology. Since it is process driven, no individual biases are involved while selecting a stock. 

As per the Nifty 50 whitepaper published by ‘NSE Indices Limited’ on April 29, 2019 Nifty represents about 67% of the total free float market capitalisation of all the listed companies on NSE and these 50 stocks account for 53% of the total volumes traded on NSE. Nifty index had always delivered positive returns based on 5 years daily rolling returns and similarly for 10-year period 84% of the time it has delivered more than 10% annualised returns. (Past performance is not an indication of future results)

Now let see why one should consider UTI Nifty Index Fund for taking exposure in Nifty Index. 

While choosing an Index Fund, most critical aspects are cost (referred as TER), tracking error, tracking difference and size of the fund. UTI Nifty Index Fund is quite competitive in all these parameters. 

Cost (Total Expense Ratio – TER)

Currently total expense ratio i.e. TER of UTI Nifty Index Fund – direct plan is just 0.10% as against peer average of 0.25%. Similarly, TER of regular plan is 0. 17% as against peer average of 0.70%. 

Source: MFI Explorer. * = UTI Nifty Index Fund. Data as on January 31, 2020. $ = Considering Growth Options of Index Funds based on Nifty 50 Index. Industry average considering the funds excluding UTI Nifty Index Fund. This is the current TER and may change in future as per the SEBI’s guidelines

Tracking Error

UTI Nifty Index Fund has the lowest tracking error among the peers. 1 Year tracking error of the fund is 0.02% as against peer’s average of 0.27% in direct plans and 0.28% in regular plans.

Source: MFI Explorer. * = UTI Nifty Index Fund. Data as on January 31, 2020. $ = Considering Growth Options of Index Funds based on Nifty 50 Index. Industry average considering the funds excluding UTI Nifty Index Fund

Tracking Difference

While tracking error shows the consistency of the fund tracking its underlying benchmark, tracking difference shows the relative performance of the fund against the total return Index. Here also, UTI Nifty Index Fund has one of the low tracking differences across time period.

Source: MFI Explorer. * = UTI Nifty Index Fund. Data as on January 31, 2020. $ = Considering Growth Options of Index Funds based on Nifty 50 Index. Industry average considering the funds excluding UTI Nifty Index Fund

Size of the Fund

Last but not the least, UTI Nifty Index Fund is having almost 20 years track record and it is largest Index fund in the industry with closing AUM of Rs 1900 Crore. 

Source: MFI Explorer. '@ = End of on January 31, 2020. $ = Index Funds based on Nifty 50 Index

To summarise, index funds are the simplest way of starting your equity investment journey and instead of trying to find needles in haystack, buy entire haystack itself i.e. Nifty via UTI Nifty Index Fund.

Your “First Easy Step”! 

UTI Nifty Index Fund

This product is suitable for investors who are seeking*:

  • Capital growth in tune with the index returns

  • Passive investment in equity instruments comprised in Nifty 50 Index

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

MUTUAL FUND INVESTMENT ARE SUBJECT TO MARKET RISK, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

Author Bio

Sharwan Kumar Goyal
Mr. Sharwan Kumar Goyal is a Vice President and Fund Manager in the domestic Equity Division of UTI Asset Management Company Ltd. He is CFA Charterholder from The CFA Institute, USA and also holds a Post-graduate degree in Management (MMS) from Welingkar Institute of Management Development & Research, Mumbai. He began his career with UTI in June 2006 and has over 11 years of experience in Risk Management, Equity Research and Portfolio Analysis.