MUMBAI: Navi Mutual Fund, part of Sachin Bansal’s BFSI group Navi, has announced the launch of Navi Nifty 50 Index Fund, an open-ended equity scheme which will replicate the Nifty50 index, with the lowest cost compared to any other index schemes in the passive funds category, the fund house said on Monday.
The 10-day NFO will open on 3 July and close for subscriptions on 12 July. The investment objective of the scheme is to achieve returns equivalent to Nifty50 index by investing in stocks of companies comprising the index, subject to tracking error, a press statement said.
The 0.06% expense ratio proposed to be charged by the fund for its direct plan offering, is the lowest in the index schemes category so far. For index funds, the category average expense ratio is 0.25% and many existing index funds are charging expense in the range of 0.15-0.20%. However, readers should note that some exchange traded funds (ETFs) which are also passive in nature like index funds have lower expense ratios, data from Value Research showed. ETFs need a demat and trading account for purchase and sale but index funds can be directly bought and sold from the fund house. The Nifty has delivered a five-year CAGR of 15.7% and a 10-year CAGR of 12.5% (as of 25 June).
Commenting on the new fund, Saurabh Jain, MD and CEO, Navi AMC Limited said, “All funds have professional portfolio managers. With an index fund, investors don’t need to pay more for getting the expertise to hand-pick stocks. The real benefit to the investor is brought by lowering the expense ratio while still providing the same quality professional portfolio management through index funds. Working with our partners and leveraging our technology background, Navi has lowered the cost to 0.06% for the direct plan offering, which is the lowest in the index schemes category, as of today. Our goal is to be able to keep providing investment opportunities to investors at the best possible cost.”
The launch of this low-cost index fund comes at a time when many asset management companies (AMCs) have been steeply hiking their expense ratios. Incidentally, the US markets have seen a huge growth in the passive pace, with passive funds contributing to nearly 40% of AUM (assets under managementand the largest US AMC, Vanguard, focusing on providing low-cost investment options.
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