NFO review: Navi Mutual Fund launches lowest-cost Nifty 50 Index Fund

Sachin Bansal backed Navi MF's NFO opens on July 3 and closes on July 12; minimum application amount is Rs 500

Staff Writer   /   June 29, 2021

Navi Mutual Fund, part of Sachin Bansal’s BFSI group Navi, has announced the launch of Navi Nifty 50 Index Fund, an open-ended equity scheme which would replicate the Nifty 50 Index.

The fund will have the lowest cost compared to any other index schemes in the passive funds category. The 10-day NFO will open on 3 July 2021 and close for subscriptions on 12 July 2021. Read on to know more details.

Index funds

All funds have professional portfolio managers. With an index fund, investors don’t need to pay more for getting the expertise to hand-pick stocks. The real benefit to the investor is brought by lowering the expense ratio while still providing the same quality professional portfolio management through index funds.  

The launch of this low-cost index fund comes at a time when many AMCs have been steeply hiking their expense ratios. Incidentally, US markets have seen a huge growth in the passive space, with passive funds contributing to nearly 40 per cent of AUM and the largest US AMC, Vanguard focusing on providing low-cost investment options.

Key NFO details

● Navi Nifty 50 Index Fund is an open-ended equity scheme replicating/tracking Nifty 50 Index

● Lowest expense ratio as of today in the passive funds category / equity market at 0.06 per cent (direct plan)

● Minimum application amount is Rs 500 and in multiples of Re 1 thereafter
● Fund manager is Girish Raj
●  Since the scheme invests in Nifty 50 index, market volatility is relatively less compared to mid and small caps.

USP

The 0.06 per cent expense ratio proposed to be charged by Navi Nifty 50 Index Fund for its direct plan offering, is the lowest in the index schemes category so far.

For index funds, the category average expense ratio is 0.25 per cent and many existing index funds are charging expense in the range of 0.15 per cent to 0.20 per cent.

Navi’s new scheme would be suitable for investors who are seeking long-term capital appreciation, investment in securities covered by Nifty 50 Index and access to the growth of market leaders.

Fund-house speak

Commenting on the new fund, Saurabh Jain, MD and CEO, Navi AMC Limited said, “Working with our partners and leveraging our technology background, Navi has lowered the cost to 0.06 per cent for the direct plan offering, which is the lowest in the index schemes category, as of today. Our goal is to be able to keep providing investment opportunities to investors at the best possible cost.”

Competitor offerings

Index exchange traded funds (ETFs) are among the cheapest ways to play indices. Then, comes index funds. Among index ETFs, SBI ETF Nifty 50 (0.07 per cent), SBI ETF Sensex (0.07 per cent), ICICI Pru Nifty ETF (0.05 per cent), HDFC Nifty 50 ETF (0.05 per cent), ABSL Nifty ETF (0.05) per cent are among the cheapest. These are regular plan expense ratios.

Cost not everything

Investors need not rush to invest in NFOs just because they are low-cost. It is important to wait and watch to see how an index fund tracks the index.

Since the Navi Nifty 50 Index Fund has no track record, investors should focus on how the fund actually tracks Nifty movement and if it does with little variation (minimal tracking error). Tracking error is the difference between the returns of the passive fund and that of the benchmark, at the end of the chosen investment period. A small tracking error indicates that the fund tends to follow the benchmark very closely.
Do note that small asset index funds may find it more difficult to closely track an index due to impact of inflows and outflows and the cash component involved.

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