The volatile equity markets have been driving informed MF investors to bet big on index funds and equity-oriented ETFs, particularly when the market tanks sharply in reaction to global events.
For instance, in March, investors pumped a whopping ₹23,820 crore in domestic equity ETFs and another ₹6,415 crore in equity-oriented index funds to take advantage crash in market on the back of geo-political tension in West Asia.
In March, the Sensex and Nifty 50 crashed about 11 per cent, marking its worst monthly performance since the pandemic-driven sell-off of March 2020. The market correction wiped out nearly ₹41 lakh crore in investor wealth, primarily triggered by escalation in West Asia conflict, inflation concerns on surge in crude oil prices and aggressive foreign investors outflows.
However, both Sensex and Nifty bounced ever since. Sensex has crashed from 81,287 points in February to 71,948 points March only to bounce back to 76,913 points in April. Nifty also followed a similar trend.
After a record flows in the previous month, the domestic equity ETFs attracted investment of ₹9,668 crore while equity index funds received ₹10,218 crore inflows in April.
Index investing
Investing in mutual funds which mirror Sensex or Nifty 50 index is considered a good long-term strategy, as it offers exposure to top 50 companies. Since the equity markets are in a gradual upswing, experts feels that investors should invest in top index funds instead of trying to time the market.
DD sharma, MD, MF King, said the index funds are safer bet as it includes only the big companies which are considered the backbone of the Indian economy.
Since indices are rebalanced every six months, investors in index funds gets the benefit of automatic rebalancing, diversification and low costs, he said.
Nifty 50 index MFs are low-cost, passively managed index funds that invest in the top 50 large-cap companies listed on NSE. These funds mirror the performance of the Nifty 50 index. The returns of these funds are market-linked and come with a low expense ratio, increasing net returns for investors, said Sandeep Chawla, an independent MF distributor.
The expense ratio on these funds range between 0.02 per cent to 0.20 per cent. Among the large fund houses, Nippon MF’s Nifty fund charges expense ratio of 0.07 per cent, while Motilal Oswal MF and Axis MF charges expense ratio of 0.12 per cent and 0.17 per cent on their Nifty 50 Index Fund. The Nippon India index Fund – Nifty Plan has delivered a five-year rolling CAGR of about 18.38 per cent while the returns of other funds houses are closer to the same range as they all invest in same stocks.