Low Cost Nifty Index Fund

I want to do SIP in an index fund for 20-25 years coz I am zero in fundamental analysis so I have some queries regarding it.

  1. Which index fund is best to invest in with the
    lowest tracking error?

  2. I’m confused between nifty 50 and nifty next 50
    as I have planned to invest in only one fund which
    one to choose and why ? If you have any other
    index in mind do suggest.

  3. Looking at sensex which took 21 years to reach
    30K which is 300x but 75 months since 2015 (nifty
    touched 30K in May 2015 for the first time) to
    reach 60K which is 2x. Will the index be able to
    give that kind of growth moving forward or the
    CAGR growth will decrease from 12-15% now ( I
    don’t remember the exact number) ?

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If you want to invest for so many years, you have to read about them, know about them and only then invest. It is like buying a house without looking at it, not recommended.

Check https://www.niftyindices.com/

Go through the documents of Nifty and Nifty Next 50 there and elsewhere and find out the differences between the indices. Their structure, their risk, their return etc.

There are tens of articles on index investing in freefincal.com Check these too, you will learn a lot.

While index investing has its own benefits, there are limitations too. So don’t just invest in them without understanding them.

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Agree with the view in the previous comment. I note that you are looking for a longer term SIP, in this case the current fee may not be that relevant. Mutual fund houses can increase or decrease a fee at any given point in time, and when one fund house increase/decrease fee, others may follow too. Freefincal provides an excel sheet with tracking errors of most of the index funds on a periodical basis (there is a nominal fee associated with it, I bought it once just to see the report and found it useful). And there are several other analysis of different index based funds based on the freefincal. All the best.

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For your question about which Index is good, this article from last week is very informative
Which is the best NIFTY Factor Index? » Capitalmind - Better Investing

For your question is about which Nifty Index Fund is good, this is the latest data from freefincal…
Index fund tracking error screener September 2021 (freefincal.com)

Another article from freefincal
Nifty + Nifty Next 50: What is a good mix? (freefincal.com)

I doubt if anyone has an authoritative answer about this :slight_smile:

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You can also try NiftyBees [ETF] and JuniorBEES [Nifty Next 50 ETF], the one thing choosing ETF is the liquidty, these two are quite old ETF and the liquidity is not an issue with them. Other Mutual Fund houses also have similar ETF, in my view index fund and ETF are similar you can choose either of the two depending upon your investing style. {one thing to note is you can only buy/sell ETF during active market hours unlike index fund mf units which you can be order placed to buy/sell anytime of the day}

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I also saw Navi offering 0.06% expense ratio which I believe is the lowest out there. The only issue being you have to open a demat account in one of the 8 of their associated brokers (why I am not invested there).
Navi Nifty 50: https://www.navimutualfund.com/

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Best is to pick the ETFs in India, China and USA. Pick the ones that your macro thinking tells that you will win and then manually go into each of the 4-5-6 ETFs as a SIP.

Also, add more when it is down, and add less when it is up, esp. since you will have to do this manually, and as you say for 20-25 years.

When the ETFs are down, ask yourself if the companies under the ETF have stopped producing their products and services, and if your answer is NO, then add more funds and buy more during the phase when ETFs are down and in correction.

I wish I would have continued this strategy since I started it sincerely in 2001 and stopped in 2005 and sold off a lot in 2005 itself. I should have continued thru 2008 and 2009 and 2010.

KKP

Which ETFs do you recommend in India, US and china? How do they compare with low cost direct mutual funds? Thanks for sharing your knowledge.

I would pick ETFs that make sense to you as opposed to Mutual Funds. The two will converge as it has in the US. In fact, the US now had MF that are 0.05% in expense ratio (no error on zeros).

So, it is not the vehicle (Uber vs Lyft), but where you want to go that is MUCH more important.

https://www.niftyindices.com/ETF_and_Index_Fund_Dashboard/Quarterly_Update_Passive_Investing_India_JUN2021.pdf

If Moderators will allow the link above, it has all of the Nifty ETFs listed (by sector) and AUM. Pick the ones that make sense if you are not going to be an active investor.

To the young generation, I would say “focus on wealth creation” and “defocus by going into ETFs and MFs for wealth management” since your wealth is small. When you cross 50, you will not have a ‘career issue’ and that is when ‘wealth management becomes equally as important as wealth creation’. Think about this macro picture deeply and you will then wind up doing the right thing for 10-20-30-40 years. Just my 1paisa worth of thoughts here…there are many smarter people than me that can do wealth creation and wealth management well. I am not good as doing it so I follow the above rule.

KKP

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I used to follow nifty alpha low volatility. It gives better downside protection in bear markets and gives similar returns to nifty in bull markets but it has low volatility and beta less than 1. ICICI have come up with an etf and fund for this one. It can be used for parking funds also.
Disclosure- not invested. Direct equity will give better returns if done prudently.

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Sir,
If the discussion is strictly limited to “low cost”, then there must be additional information shared that the ETF approach also has fees like annual demat charges and charges for partial liquidation along with the same tracking error. Granted the MF 0.05% expense ratio is also annual but these ETF costs also eat into your profits

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We cannot have the cake and eat it too. One way or the other, we have to pay certain charges, and these charges are to be seen in relation to one another.

Low cost is relative to the TER of actively managed funds both w.r.t returns and risks. Many actively managed funds are failing to beat an index like Nifty Next 50 on a long time frame. One can only expect lesser fall, lesser risk with actively managed funds and not more return, as has been the case. I think no fund has Nifty Next 50 as its benchmark.

We have to choose the best available option that suits our needs. With very little maintenance, no management risk (managers quitting), ETFs with proven history and track record, with good liquidity, with low tracking error, and low difference between price and NAV are a good choice.

Of course, giving the money to someone to manage has the management fees. Typically in India, MFs total expense ratios need to come down like we are seeing in the new trend. ETF costs will also come down as more automation is implemented. And, then the trend will change when “active ETFs” will come into fashion. We are not there yet in India, but it will happen over the next 1-5 years. So, trading costs, slippages, commissions, demat fees, advantages of executing trades during the day (for ETFs), fees with MF when buying from ICICIbank (for example) are all known and obvious elements, once the decision is made which ETF or MF is picked. There is a bigger loss and gain in making a good asset allocation decision for an age group and risk profile than any of the above variables of costs. Over 25 to 30 years cost efficiencies will give a good advantage, so costs have to be considered in the selection, but asset allocation will be the biggest winner of all variables. I am still learning and hence adjusting portfolios between stocks, ETFs and bonds.

KKP

Here’s list of expense ratios of Nifty 50 index funds as on 24-9-21

OPTIONS AVAILABLE 24-9-21
fund name expense ratio aum
HDFC Index Fund-NIFTY 50 Plan 0.20% 3705
UTI Nifty Index Fund - Direct Plan 0.20% 4854
IDFC Nifty Fund - Direct Plan 0.17 356
Tata Index Nifty Fund - Direct Plan 0.16% 177
ICICI Prudential Nifty Index Fund - Direct Plan 0.17% 2060
Nippon India Index Fund - Nifty Plan - Direct 0.2 401
SBI Nifty Index Fund - Direct Plan 0.17 1430
Aditya Birla Sun Life Index Fund - Direct Plan 0.34 282
DSP Nifty 50 Index Fund - Direct Plan 0.29 139
L&T Nifty 50 Index Fund - Direct Plan 0.25 80
Motilal Oswal Nifty 50 Index Fund - Direct 0.1 98
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Hello forum,
Needed advice.
Which would you suggest and why?
Nifty bees vs index fund.
I did find a lot of content related to it , best one being

but needed personal opinions as well.
(If Someone who has invested in both , can share, that would be awesome).
Also I am not interested in SIP model.

Update: After going through the below mentioned freefincall items:
Few links that I found helpful:

It depends on the purpose of investing. If the investment it meant to be for any financial goal, then it is better to go with an index fund, although the expense ratio is higher to that of an ETF.

Reasons being, tracking error of the ETF, price and NAV difference of the ETF, liquidity of the ETF etc.

Tracking error could be high for the ETF compared to the index fund.

And a popular ETF trades at premium to its NAV, there is spread between the price and the NAV of the ETF. The price will be more compared to the NAV, depending upon the demand of the ETF. At times it trades at a discount.

Then there is the liquidity, if you have invested a big sum in the ETF and wants to sell, there may not be enough buyers, also as the price is in real time, the buyers’ bids will be low, so there could be a big loss, but if the same big sum is invested in an index fund, you can happily redeem with the fund house. There is the chance of selling the ETF units to the fund house, but the number of units that can be sold is very high, 50,000 in the case of Niftybees, meaning you cannot buy or sell less than 50,000 units.

There are many articles written on freefincal.com, explaining the differences and advantages of investing in index funds and ETFs, check them out.

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Nice youtube channel from fincal representative. Includes several concepts on this style.