Listen to this article
Axis Mutual Fund is launching a fund that will stay true to its index—the Axis Nifty 100 Index Fund.
The New Fund Offer (NFO) will open on 27 September 2019. Investments in this fund will be invested in the top 100 companies that represent whole of the Nifty 100 index i.e. the top 100 large market capitalization companies. Consistent investment replicating the index leaves no room for any unforeseen mistakes by fund manager.
Can the Axis Nifty 100 Index Fund, (by investing in only the top 100 companies) out perform an actively managed fund?
We will find out in this NFO review of Axis Nifty 100 Index Fund.
Table of Content:
-
1. Basic Features of Axis Nifty 100 Index Fund
2. A Quick Review of Axis Mutual Fund AMC and the Fund Manager
3. Asset Allocation of Axis Nifty 100 Index Fund
4. Review of NIFTY 100 INDEX by Performance Analysis
5. Review of Risks in Nifty 100 Index
6. Review of Risks in Axis Nifty 100 Index Fund
7. What Is Special About Axis Nifty 100 Index Fund?
8. Underlying Drawbacks of Axis Nifty 100 Index Fund
9. Nifty 100 Index Vs Actively Managed Funds
10. Should You Invest in Axis Nifty 100 Index Fund?
Basic Features of Axis Nifty 100 Index Fund:
Fund Name: Axis Nifty 100 Index Fund
Fund House: Axis Mutual Fund
Issue Opens On: 27 September 2019
Issue Closes On: 11 October 2019
Fund Type: Open-ended
Fund Category: Equity-Large Cap
Benchmark: Nifty 100 TRI
| Basic Investment Details: Axis Nifty 100 Index Fund | |
|---|---|
| Available plans | Growth, Dividend |
| Riskometer | Moderately High |
| Minimum Subscription Amount | ₹5000 (plus multiples of ₹1) |
| Minimum Additional Investment | ₹1000 (plus multiples of ₹1) |
| Minimum SIP Investment | ₹1000 |
| Minimum SIP Instalments | 12 |
| Minimum SWP Amount | ₹1000 (plus multiples of ₹1) |
| Expense Ratio | Up to 1.50% |
| Entry Load | Not Applicable |
| Exit Load | 1% (For Redemption within 7 Days) |
A Quick Review of Axis Mutual Fund AMC and the Fund Manager
Axis Mutual Fund has been in the market providing mutual fund schemes since early 2009.
Mr Chandresh Nigam is the present CEO of Axis Mutual Fund AMC, which is headquartered in Mumbai. The AMC has a total of ₹102267.40 Crores Asset Under Management (AUM).
This huge amount of AUM is spread across 53 mutual fund schemes provided by the Axis Mutual Fund AMC. Out of the 53 schemes, 16 of them are outperforming their respective indexes.
Fund Manager: Mr. Ashish Naik
For the Axis Nifty 100 Index Fund, Mr Ashish Naik will act as the fund manager. Apart from the Axis Nifty 100 Index Fund, Mr Ashish Naik is managing 14 other funds for the Axis Mutual Fund.
The Axis Nifty 100 Index Fund will only try and replicate the performance of the Nifty 100 Index. The fund manager will not play any significant role in the management of the fund. The Axis Nifty 100 Index Fund will be only passively managed by tracking the Nifty 100 Index.
Let us review the Nifty 100 Index to see how this Axis Nifty 100 Index Fund could perform.
Asset Allocation of Axis Nifty 100 Index Fund
As this is an index fund, the Axis Nifty 100 Index Fund will not have a diverse asset allocation.
However, as a safety precaution, the fund manager will allocate a small percentage of assets towards debt. See the table below for asset allocation of the Axis Nifty 100 Index Fund:
| Instruments | Asset Allocation % | Risk Profile | |
|---|---|---|---|
| Minimum | Maximum | ||
| Nifty 100 Index Shares | 95% | 100% | High |
| Debt & Money Market Instruments | 0 | 5% | Low-Medium |
At any given time, a minimum of 95% of the investments will be invested in the shares comprising the Nifty 100 Index.
Review of NIFTY 100 INDEX by Performance Analysis
As seen before, the index represents the performance of top 100 large market capitalization companies.
The Nifty 100 Index was launched on 01 December, 2005. It is the combination of the indexes Nifty 50 and the Nifty Next 50. See the index performance details shown in the table below.
| Nifty 100 Index (Total Return Index) | |
|---|---|
| Category | Equity: Large Cap |
| Launch Date | Dec 01, 2009 |
| Return Since Launch | 17.31% |
| 5 Year Return | 8.61% |
| 1 Year Return | -5.83% |
| YTD | 1.49% |
| *Data as of August 30, 2019 | |
Typically a fund’s performance is measured by comparing its returns against a benchmark index’s return. Since the Nifty 100 Index itself is a benchmark, its performance cannot be evaluated in the same way. That is the Alpha value for index funds are non-existent.
On the other hand, the return since launch is a good 17.31% which even some actively managed funds struggle to reach. Besides, the difference in 1 year return and the Year-To-Date return shows a possible recovery after a slip in CAGR.
Review of Risks in Nifty 100 Index
The Nifty 100 Index has a relatively lesser risk than other indexes except for the Nifty 50 Index. The aspect of investing only in the top 100 large cap companies helps to do it.
However, since the entire assets are only equities, relatively lesser risk does not mean lesser risk. At any given time the Nifty 100 index can be considered a high risk fund.
| Risk Measures | Since Launch | 5 Years | 1 Years |
|---|---|---|---|
| Std. Deviation | 22.18% | 13.53% | 14.26% |
| Beta (Nifty 50) | 0.99 | 1.00 | 1.00 |
Reviewing Risk with Beta: Beta value represent the volatility of a fund. Comparing against the Nifty 50 index (first 50 companies), Nifty 100 Index is in line in terms of volatility. A beta value of 1.00 is appreciable for the return potential it exploits compared to the Nifty 50 index.
Reviewing Risk with Standard Deviation: It represents the volatility/stability of a fund in terms of mean returns. The higher the number, more volatile is the fund.
A standard deviation of 14.26% is really not desirable. The increase in standard deviation from the past 5 year to the past 1 year indicates further increase in the volatility of the Nifty 100 Fund.
Review of Risks in Axis Nifty 100 Index Fund
It is evident that the minimization of operational and market risks is one of the main focus points of Axis Nifty 100 Index Fund.
However, the fund will carry along the other standard risks involves with investing in mutual funds. The risks include but not limited to:
Market Risks: arising from market fluctuations which may result in capital loss.
Liquidity Risk: arising from difficulty in selling an asset at a fair price due to lack of buyers.
In addition, Axis Nifty 100 Index Fund also has: Risks Associated with Passive Investment Strategy, Tracking Error, Scheme Specific Risks, Risk Associated with Investment in Derivatives, etc.
What Is Special About Axis Nifty 100 Index Fund?
Following is the list of attributes about the Axis Nifty 100 Index Fund that makes it an attractive fund.
- The fund invests only in the top 100 companies.
- It has a very less expense ratio: up to 1.50%.
- Risk avoidance due to absence of any active strategy.
- Minimum 95% asset allocation in Nifty 100 Index shares.
These sure are straight up valid and attractive reasons to invest in the Axis Nifty 100 index fund. But what lies underneath these attractive features may not be attractive at all.
Underlying Drawbacks of Axis Nifty 100 Index Fund
Nifty 100: Investing only in the top 100 large capitalization companies is definitely a safe take. However, it also curbs options to explore and invest in the shares that can provide much higher returns for lesser risks by active management.
Especially in a growing economy like India, an index fund takes away the liberty of investing in the abundant capital growth opportunities.
For example: Let’s say there is a group of companies, ranking in the 200s in the NIFTY 500 Index, is giving higher returns and growing. In this scenario, the Axis Nifty 100 Index Fund cannot invest in the shares of these companies until they reach the top 100.
Even if it is obvious that the share prices will continue to grow, the fund manager cannot buy these shares when their prices are low. Due to this, the ‘Buy Low—Sell High’ strategy becomes ineffective in passively managed index funds.
On the other hand, if a Nifty 100 company share is underperforming and declining, the fund manager cannot sell the shares of this company until it goes out of the Nifty 100 index. That is, the fund manager cannot avoid the share price depreciation even if it is obvious to him.
Expense Ratio: Even though the Axis Nifty 100 Index Fund has a very less expense ratio, it is not zero.
The more appropriate perspective is that a passively managed fund is requiring an expense ratio of 1.50% is quite an expense. There are actively managed funds that provide a much higher returns for slightly higher expense ratio.
risk avoidance: To put it straight, when it comes to equity mutual funds, risks are inevitable. An appropriate strategy would be to actively manage the risks than to avoid the risks with no actual strategy.
Also, risk avoidance nullifies the whole purpose investing in the equity mutual funds for long-term wealth creation.
Nifty 100 Index Vs Actively Managed Funds
Passive management of funds is certainly an impressive strategy on paper. However, track records prove otherwise.
| Instrument | 5 Year Return |
|---|---|
| Nifty 100 Index | 8.61 % |
| Large-Cap Category Average | 8.96 % |
| Top Performer in Large-Cap | 12.23 % |
| *Data as on 24 September 2019 | |
| Source: morningstar.in | |
The return of the index is lesser than even the category average, even though the difference is small.
But if we look at the top performing fund in the category, the difference in return is a solid 3.6%. Even if we consider a higher expense ratio for the top performing fund, the return on the actively managed fund will be higher than the return on index.
Should You Invest in Axis Nifty 100 Index Fund?
The straight answer is No.
Investing in an index fund after financial planning and/or building a custom portfolio will make the whole process pointless.
Index funds allow a fund manager neither to actively manage risks nor to seek growth opportunities. Expecting an index fund following an arbitrary index to give long term capital appreciation is far-fetched.
As seen above, there are actively managed funds that have outperformed the index consistently to provide higher returns for the investors.
If you want to understand and identify the right mutual fund schemes to fit your portfolio, don’t hesitate to sign-up for your free 30-minute consultation now.
[the_ad id=’13360′]
Leave a Reply