Choosing a combination of ETFs with outlook-based allocation weightage to generate potential alpha can be challenging for investors.
Axis Mutual Fund has launched its Axis Equity ETFs FoF NFO. The FoF primarily targets to invest in units of domestic equity ETFs.
What is the investment strategy?
We will analyze the pros and cons of this scheme in detail in this review.
- Axis Mutual Fund AMC
- Configuration of Axis Equity ETFs FoF NFO
- Investment Objectives of Axis Equity ETFs FoF
- Investment Strategy of Axis Equity ETFs FoF
- About The ETF
- How to Pick the Right ETF?
- Pros of Investing in Axis Equity ETFs FoF
- Cons of Investing in Axis Equity ETFs FoF
- Takeaway on Axis Equity ETFs FoF Review
Axis Mutual Fund AMC:
Axis Mutual fund is the seventh-largest AMC by assets size in India. The total AUM of Axis Mutual Fund is around ₹2.60 Lakh Crores.
Configuration of Axis Equity ETF FoF NFO:
Investment Objectives of Axis Equity ETFs FoF:
The primary objectives of this scheme are:
- Targets to invest predominantly in units of domestic equity ETFs.
- To generate long-term capital appreciation.
- Eliminating the risk of security selection.
- It aims for minimal tracking error.
- Opportunity for Investors willing to add low-cost passive investments to their portfolios.
- Investors can avail various systematic options like SIPs, STPs, and lumpsum investments.
- The portfolio will be more transparent when compared to active mutual funds because it replicates a stock market index.
- It attempts for minimal tracking error.
- It will have multiple equity ETF exposures in the stock market, thereby better diversification.
- Passively managed funds will have a lower expense ratio.
- This fund will change the allocation between ETFs from time to time based on their outlook.
- This fund will invest in more liquid ETFs; and can reduce the impact cost for investors.
- Passive funds have smaller potential returns compared to active mutual funds.
- Passive funds ignore company fundamentals and invest solely based on float-adjusted market cap.
- Stock concentration will be a significant risk while investing in passive ETFs, and they will never beat the market.
- As this fund invests only in equity ETFs, it is not suitable for short term investments.
Investment Strategy of Axis Equity ETFs FoF:
Passive Investing is a low friction Investment strategy monitoring a specific index as closely as possible. Axis ETFwill dynamically allocate the funds across the market cap and follow thematic/sectoral passive investment strategies.
The scheme will try to invest and maintain domestic ETF exposure of more than 95% of net assets at all times. The NFO will integrate the Market cap management and Sectoral management by actively managing passive strategies. Mr Shreyash Devalkar will be the fund manager for this fund.
About The ETF:
ETF (Exchange Traded Funds) is a mutual fund structured to track the performance of an index by simply replicating and mirroring the index in its portfolio. Moreover, ETFs are suitable for beginner-level investors because they offer low expense ratios,a wide range of investment choices, diversification, and so on.
ETFs are the popular choices among investors following passive strategy.
How to Pick the Right ETF?
An investor needs to check whether the chosen ETF trades in average volume daily. Trading volume is a good liquidity indicator. Bid-ask spread will be tighter for ETFs trading at a higher volume.
ETFs with minimal tracking error is preferable to ETFs having a higher degree of error. Invest in ETF based on a broad and widely followed index.
Pros of Investing in Axis Equity ETFs FoF:
Cons of Investing in Axis Equity ETFs FoF:
Takeaway on Axis Equity ETFs FoF Review:
Ultra-conservative investors who are hesitant to invest in active funds can choose this Axis Equity ETFs FoF.
Though the Axis Equity ETFs FoF aims to have low tracking error and generate alpha by actively changing the allocation between ETFs, we need to wait and see whether they will be able to achieve this or not.
We also need to wait and check their track record on their ability to change the allocation between ETFs successfully based on their outlook.This way, there is a possibility that the very purpose of passive investing may get defeated.
If you are looking for dynamic fund management and market-beating returns, Axis Equity ETFs FoF may not be the right choice.
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