Holistic investment planners, financial planning Chennai, Private wealth management Chennai

Financial Planning chennai India, Private wealth management chennai India, Investment Advisory India, Systematic Investment Plan, Mutual Fund SIP, Mutual Fund ELSS, Tax Saving scheme

IDFC Nifty 100 Index Fund: NFO Review: —Should You Invest?

by

The IDFC Nifty 100 Index Fund aims to replicate and mirror the NIFTY100 Index.

What is the advantage of investing in Nifty 100 over Nifty 50?

Who can invest in IDFC Nifty 100 Index fund?

Who should avoid IDFC Nifty 100 Index fund?

Let us explore.

Table of Contents:

IDFC Mutual Fund:

IDFC Asset Management Company ranks #10 in terms of Asset under Management (AUM) in India.

The fund house has more than 60 schemes across mutual funds, AIF, PMS, etc., and manages over Rs. 1. 26 Lakh Crores of assets.

Configuration of IDFC Nifty 100 Fund:

Investment Objective of IDFC Nifty 100 Fund:

  The primary objectives of this Index fund are:

  • Create wealth over the long term.
  • Investment in equity and equity-related instruments belonging to the Nifty 100 Index.

Investment Strategy of IDFC Nifty 100 Fund:

  • The scheme will invest in Nifty 100 securities with the same proportion.
  • It aims to provide returns before expenses that closely correspond to the total return of the Nifty 100 Index, subject to tracking errors.

What should you know before investing in Index funds?

Index funds are less volatile than other actively managed equity funds. While investing in index funds, choosing a fund with low tracking error is the key. 

Since the index funds are passive, their expense ratio tends to be lower than active mutual funds.

Even though these funds fluctuate in the short term, it averages over the long term period. Long-term investments in index funds can earn better inflation-beating returns.

Index funds don’t assess the underlying securities in the index. Instead, they invest in the entire index without considering the financial status of the underlying companies.

Key Facts to know: IDFC Nifty 100 Index Fund:

  • It is a well-diversified index across key sectors like oil & gas, Information technology, financial services, and consumer goods.
  • Nifty 100 index consists of 100 largest companies based on market cap.
  • This index has a long track record of market trends over the past 16 years.

Nifty 100 VsNifty 50:

Nifty100 consists of India’s large-cap companies in terms of total market cap. Even though this index has companies across 17 sectors, it has a heavy inclination towards IT, oil and gas, consumer goods, and financial services. 

So there is an imbalance in holding weightage among the sectors. Over the long term, the Nifty 100 index has given outstanding returns. For the past 15 years, the average annual return of the index was around 12.3%.

The Nifty50 index consists of India’s large-cap companies based on the free-float market cap. The Nifty50 index is diversified across 13 sectors. But it has a heavy tilt towards a few sectors like financial services and IT.

Since this is based on a free-float market cap, the index doesn’t hold equal weightage to all the companies. Over a long time, the index has beaten inflation with a considerable margin. For the past 15 years, the average annual return of the index was around 12%.

Pros of Investing in IDFC Nifty 100 Index Fund:

  • IDFC Nifty 100 Index fund is free from fund manager bias.
  • This fund provides diversification across various sectors.

  • Nifty 100 returns are relatively stable with less volatility.
  • Long-term investments in this Index fund can yield better returns.
  • Investing through SIP can generate long-term capital appreciation.
  • This fund may have a low expense ratio.

Cons of Investing in IDFC Nifty 100 Index Fund:

  • As an index fund, this may underperform its index due to certain factors like fees and expenses, trading costs, etc.
  • The major risk of index fund investment is tracking error,since it may not perfectly track its index.

  • As an Index fund, it isnot flexible when compared to active funds. This fund will not be able to take any course corrective measure during the correction or market crash.
  • This fund will not be able to deliver market-beating returns.
  • This fund will blindly buy the entire index without doing any analysis on the underlying stocks. In the active large-cap funds, the fund managers will analyse all the large-cap stocks and pick and choose the best stocks based on their research and analysis. This way active funds can take calculated risk compared to this fund.

The Final Takeaways of IDFC Nifty 100 Index Fund Review:

If you are an ultra-conservative investor who is not willing to invest in actively managed funds, this fund may be suitable for you.

If you are an investor looking for midcap or small-cap exposure as well, this fund will not be suitable for you.

The ability of this fund to maintain low tracking error and low expense ratio is untested as of now. It’s better to wait till they create a track record.

Investors expecting dynamic fund management and looking for investments that can beat the market should avoid this fund.
If you have any comments or questions, write them in the comment box below.

Or are you interested in creating a Comprehensive Financial Plan for your financial goals?

Skip the queue by registering for your 30 Minute FREE Financial Plan Consultation. Click the ‘Register Now!’ button below. 

Budget