Index investing with Axis Nifty 100 Index Fund
Axis Mutual Fund had launched its only passive investment offering in the month of October last year. Now it is on the verge of completing one year. Axis Nifty 100 index fund is the only index fund with an objective to track Nifty 100. In fact, we do have funds from Sundaram Mutual Fund and Principal Mutual Fund but they are equal-weighted index. Therefore, in this article, we would analyse the performance of Axis Nifty 100 Index Fund so far and would also compare the performance of Nifty 50 as against Nifty 100 Index. There are two things that we need to check in index funds, one being tracking error and the other would be expense ratio.
Note: Period of analysis is from October 23, 2019 to July 31, 2020
The above graph clearly depicts that Axis Nifty 100 Index Fund precisely follows Nifty 100 index thereby, keeping tracking error at the bay. Its tracking error is merely 0.002 per cent.
If we look at its current expense ratio then, it stands at 0.15 per cent. However, if we look at the expense ratio of Nifty 50 index funds then, there are funds with an expense ratio of as low as 0.1 per cent.
Note: These expense ratios are for direct plans
If we compare the expense ratios of regular plans then, the expense ratio of Axis Nifty 100 Index Fund stands at 1 per cent, whereas Nifty 50 index funds have a mere 0.3 per cent on an average. Therefore, at least from the regular plan’s perspective, Axis Nifty 100 Index Fund is substantially expensive. Now, the question is, whether is it worth to spend 0.7 per cent extra for investing in Nifty 100 index fund? To answer this, we have to compare Nifty 50 and Nifty 100 index.
Note: Period of analysis is from August 1, 2005 to July 31, 2020
The above graph clearly shows that on a five-year rolling returns basis, Nifty 50 and Nifty 100 have given similar returns, barring a few instances. This can also be proved with the standard deviation method as the standard deviation of five-year rolling returns of Nifty 50 stood at 0.045 and that of Nifty 100 stood at 0.047. Therefore, with this, we can say that it is not worth spending 0.7 per cent in the form of expense ratio to own the Nifty 100 index. Rather, one would be better off investing in Nifty 50 index.