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Why does the MC30 have index funds and ETFs?

Over the years, it has become tougher for large-cap funds to outperform their benchmark indices. So, index funds may be better options in this space

August 20, 2021 / 08:52 AM IST

On August 16, Moneycontrol unveiled the first edition of MC30 – a curated basked of 30 mutual fund (MF) schemes. MC30 has been devised to make your investment choices simpler. Five schemes in the MC30 basket are passively managed. What is the role of passively-managed schemes in your portfolio?

Also see: The complete MC30 basket of mutual fund schemes

Passive funds as alternatives to large-cap schemes

Over the years, it has become tougher for large-cap funds to outperform their benchmark indices, due to a couple of key reasons. One, mutual fund schemes are now required to measure their performances against the total returns index that includes dividends.

Also read: How to use MC30?

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Two, a tighter definition of stocks by their market capitalisation has meant that all large-cap funds now invest significantly in the same set of stocks. This makes it harder for one scheme to have a big edge over others.

Also read: Is investing in index funds the best way to take large-cap exposure?

The best route for new asset classes

A passively-managed schemes help you to invest in other assets such as gold and even foreign securities.

Let us introduce the passively-managed funds in the MC30.

Also read: MC30: The methodology behind the curated basket of mutual fund schemes

Nippon India ETF Nifty BeES

Nippon India ETF Nifty BeES (N50B) is India’s oldest exchange-traded fund (ETF). It tracks the Nifty 50 index and is among the most liquid ETFs. Aside from low tracking errors (the difference between scheme and benchmarks returns), it is also important for your ETF to be liquid. ETFs are traded on the stock exchange and market makers are appointed to provide liquidity. A well-oiled machinery ensures that you get to buy and sell your ETFs at prices closest to their actual net asset value (NAV). Nippon India ETF Nifty BeES scores on all these parameters. Remember, you need a demat account to buy and sell ETFs.

Also see: The complete MC30 basket of mutual fund schemes

UTI Nifty Index Fund

If you do not have a demat account, then you can invest in UTI Nifty Index Fund(UBIF). This was India’s first Nifty-based index fund.

UBIF’s tracking error has consistently been the least among index funds. Its expense ratio is also low, which bodes well for a passively-managed fund. At a corpus size of about Rs 4,353 crore, it is one of the largest in its space.

Also read: How to use MC30?

ICICI Prudential Nifty Next 50 Index Fund

The Nifty Next50 index is one of the most consistent and among the best-performing diversified indices around. It consists of the 50 most liquid companies outside the Nifty 50 index.

ICICI Prudential Nifty Next 50 (INN50) has been a consistently delivering index fund. And a passively-managed scheme that tracks the Nifty Next 50 index is a better way to track this index than an actively-managed option.

Over the last 10-year period, the Nifty Next 50 TRI delivered 16.3 percent returns. The Nifty 50 TRI gave 14.2 percent. Although the Nifty Next 50 index can be a bit more volatile than the Nifty 50 index, the former has been more consistent.

Motilal Oswal NASDAQ 100 ETF

In the past two years, international funds have become popular. And many fund houses have rolled out a variety of foreign schemes – those that invest in US or European stocks, emerging markets, specific countries or even companies bound by a common theme.

Typically, your first international fund ought to be one that invests in the US because of the variety of companies available and their liquidity. Motilal Oswal NASDAQ 100 ETF (MNAS100ETF) is an ideal vehicle in this regard. It invests in companies that are part of the NASDAQ 100 Index. There are companies across computer hardware, software, telecommunications, retail/wholesale trade and biotechnology industries in there.

Despite focussed on technology stocks, this is a good scheme to get foreign exposure, especially if you are just starting out.

Also see: The complete MC30 basket of mutual fund schemes

Nippon India Gold BeES

Nippon India Gold BeES (Gold BeES), India’s oldest gold ETF, is one of the best schemes to invest in, if you wish to go for gold in a paperless way and also diversify your portfolio.

A low tracking error and sufficient liquidity make this scheme a winner. Invest around 5-10 percent of your portfolio in Gold BeES.
Kayezad E Adajania heads the personal finance bureau at Moneycontrol. He has been covering mutual funds and personal finance for the past two decades, having worked in Mint and Outlook Money magazine. Kayezad was the founding member of Mint’s personal finance team when it was set up in 2009.
first published: Aug 20, 2021 08:52 am

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