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Exploring the NIFTY Total Market Index Fund: Benefits and Risks
Table of Contents
Introduction to Mutual Fund Categories in India
India offers a wide array of mutual fund categories including large cap, mid cap, small cap, flexi cap, and many others. Investors often find it challenging to decide which category suits them best. As a result, many end up investing in flexi cap funds, which is not necessarily a bad choice. However, micro cap funds are rarely discussed and are often overlooked due to the lack of dedicated funds for them.
The NIFTY Total Market Index
In October 2021, NSE launched the NIFTY Total Market Index, which aims to cover the entire stock market. Despite the launch, there was no index fund that allowed investors to invest in this index. Today, we will explore the NIFTY Total Market Index Fund, which offers an opportunity to invest across large cap, mid cap, small cap, and micro cap stocks.
Detailed Video
Understanding the NIFTY Total Market Index
The NIFTY Total Market Index comprises 750 stocks, tracking the performance of these stocks across various market segments. It covers large cap, mid cap, small cap, and micro cap stocks, providing a comprehensive market exposure. This index is a combination of the NIFTY 500 Index and the NIFTY Micro Cap 250 Index.
Sectoral Bifurcation
The NIFTY Total Market Index is diversified across several sectors. The major sectors and their weightages are as follows:
- Financial Services: 28.2%
- Oil & Gas: 8.76%
- Information Technology: 8.32%
Understanding the sectoral distribution is crucial for investors to gauge where the major weightages lie and how diversified the index truly is.
Pros and Cons of NIFTY Total Market Index Fund
Investing in the NIFTY Total Market Index Fund has its advantages and disadvantages. Let's delve into both aspects to provide a balanced view.
Advantages
The primary advantages of this fund include:
- Diversification: Investing in 750 stocks offers extensive diversification.
- Low Cost: As an index fund, it comes with lower expenses.
- Simplicity: Investing in 750 stocks directly simplifies the investment process.
Disadvantages
However, there are some drawbacks to consider:
- Market Risk: Like all stock mutual funds, it is subject to market risks.
- Over-Diversification: Investing in 750 stocks may lead to over-diversification, which can dilute potential returns.
- Market Downturns: The fund will likely perform poorly during broad market downturns.
Who Should Invest?
The NIFTY Total Market Index Fund is suitable for investors looking for:
- Low-cost investment options
- Super-diversified portfolios
- Long-term investment horizons
It is important to note that this fund is ideal for those who are willing to invest for the long term and can tolerate market volatility.
Bandhan NIFTY Total Market Index Fund
Bandhan is launching the NIFTY Total Market Index Fund, which will be open for subscription from June 24 to July 5. The allotment will be done on July 10. This fund is categorized as very high risk due to its extensive market exposure.
Fund Details
The fund manager for this scheme is Nimish Seth. However, since the fund aims to replicate the NIFTY Total Market Index, the role of the fund manager is limited, resulting in lower expenses.
- Exit Load: 0.25% if redeemed within 15 days
- Minimum Investment: Rs.1000
Conclusion
The NIFTY Total Market Index Fund offers a unique opportunity to invest across the entire stock market, covering large cap, mid cap, small cap, and micro cap stocks. It provides extensive diversification and comes with lower costs. However, it is essential to understand the associated risks, including market volatility and over-diversification.
This fund is best suited for investors with a long-term perspective who seek a low-cost, diversified investment option. As always, it is crucial to conduct thorough research and consult with a financial advisor before making any investment decisions.
We hope this guide provides valuable insights into the NIFTY Total Market Index Fund. If you have any questions or feedback, please share them in the comments section. Remember, this article is for informational purposes only and does not constitute investment advice.
Frequently Asked Questions
The NIFTY Total Market Index Fund is an investment option that aims to cover the entire stock market by investing in a comprehensive range of stocks across large cap, mid cap, small cap, and micro cap segments.
Unlike other index funds that might focus solely on large caps or mid caps, the NIFTY Total Market Index Fund provides broad market exposure by including 750 stocks from various market segments, offering extensive diversification.
The main benefits include extensive diversification, lower expense ratios due to its index fund nature, and simplicity in investment as it tracks a wide range of stocks in a single fund.
Yes, potential risks include market risk, where the fund's value can fluctuate with market conditions, and over-diversification, which might dilute potential returns. It also might underperform during broad market downturns.
This fund is suitable for investors looking for low-cost, super-diversified portfolios with a long-term investment horizon. It is ideal for those who can tolerate market volatility and seek comprehensive market exposure.
