Axis Nifty 50 Index Fund NFO is available for subscription from 15th November 2021 to 29th November 2021. Whether you be part of this fund by investing in NFO or should you wait and watch?
Now the trend of Index Funds is picking slowly in India, many AMCs lined up to launch various categories of Index Funds. One such is from Axis AMC.
Just because it is an Index Fund does not mean you have to subscribe for this NFO. Instead of that, take a cautious call.
Axis Nifty 50 Index Fund NFO – Stay away
Why I am suggesting to stay away from this NFO upfront when I myself a proponent of Index Funds? If you look at my yearly Mutual Fund recommendations, I moved to Index Funds since two years and the same can be viewed at “Top 10 Best SIP Mutual Funds to invest in India in 2021“. The reasons are as below.
# Expense Ratio
I am unable to find the expense ratio of this particular NFO. You may be aware that few months back when Navi Mutual Fund launched the Index Fund, it declared it’s expense ratio in advance with eye-catching news that this is going to be one of the cheapest Index Fund in India. I have written an article on this “Navi Nifty 50 Index Fund – Beware of cheapest Index Fund!!“. It was declared that the expense ratio will be 0.06%.
However, in this Axis Nifty 50 Index Fund NFO, they are silent in case of expense ratio. Their Axis Nifty 100 Index Fund TER is currently at 0.15%. Hence, we may not expect such a low competitive expense ratio from this fund. This new fund TER maybe around the same Axis Nifty 100 Index Fund.
Also, all these mutual fund companies have a habit of increasing the TER once they reach their target AUM. This forces us to be in trouble like neither we move away (as it cost a lot for us like taxation) nor can continue as the expense ratio is high.
Let us look back and see how few fund houses played the game of accumulating the AUM and then immediately increasing the expense ratio.
In the month of April, both UTI AMC and HDFC AMC increased the expense ratio. UTI hiked its expense ratio on its UTI Nifty Index Fund from 16 April. For direct plans, the increase was 8 basis points. It raised from 0.1% to 0.18%.
Same way, HDFC AMC, increased TER on two index funds from 15 April. The TER for HDFC Index Fund-NIFTY 50 was actually doubled from 0.1% to 0.2%, for the direct plan. For the regular plan, it was increased from 0.3% to 0.40%.
These funds are in my recommended list of mutual funds for 2021 (Top 10 Best SIP Mutual Funds to invest in India in 2021).
An interesting point to notice here is that there was no drop in AUM for these funds. But still, these AMCs increased the expense ratio without giving any valid reasons (they are not obliged to give also).
Because of this, those who are already investing in these funds felt as if they were cheated as they can’t move out in middle.
In fact, there are no strict regulations on giving reasons for the increase in expense ratio by AMCs. The game that they play with us is simple – Initially lower the expense ratio to attract. Once they build the decent targetted AUM, then increase the expense ratio. Those who invested have no option but to continue.
Do remember that such an increase in expense ratio is usually within the limit which the regulator has prescribed. Hence, they have neither obligation to give us the reason nor we can question such moves.
Hence, rather than blind jumping and subscribing for this NFO just because it is an Index Fund, better to wait and watch and after few years of performance, we can invest.
# Axis Nifty 100 Index Fund Tracking Error
It is not prudent to compare the same AMCs different Index Fund’s tracking error and judge that this new fund will also behave so. However, if we look for 1 year and since inception tracking error, we may assume how this AMC managing its existing funds. Take for example. 1-year fund return is 56.27% but the Nifty 100 Index return is 58.51%. The difference of 2.24%. For an Index Fund, such a high tracking is not acceptable. The same is the case if we compare the since inception return of the fund is 23.34% and Index return is 24.85%. The difference is 1.51%. This shows that their existing Index Fund is having a higher tracking error.
But as I told you above, I am not saying that this new fund will perform in the same manner. However, instead of jumping into NFO, better to wait and watch and how the fund performs and then take a call.
Conclusion:- Hence, because of the above reasons, I strongly suggest you stay away from this NFO currently. Let us wait and watch about the fund expense ratio, performance and AUM, then we can take a call.