Mumbai: Nippon India Mutual Fund has announced the launch of two new funds in the passive space. These new fund offers (NFO) are based on auto and realty themes. Both the funds are open-ended index funds with their NFO opening on November 14, 2024 and closing on November 28. Nippon India Nifty Auto Index Fund is a passive fund that will track the performance of the Nifty Auto index, while Nippon India Nifty Realty Index Fund will follow the Nifty Realty index.
both passive funds
Since both of these are passive funds, they will invest in the securities of their respective underlying indexes. Being passive, these funds have some benefits for investors, such as lower costs, diversification through a single unit and transparency, as both the funds will mimic their respective indexes.
How much contribution does auto sector make to GDP?
India’s automobile sector contributes 7.1% to the country’s gross domestic product (GDP). The industry is diverse, including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and automotive component manufacturers. Demand for electric vehicles (EVs) is rising, driven by government incentives, falling battery costs and rising petrol and diesel prices. EV penetration in India is expected to reach 40% by FY 2030, leading to growth of the auto sector. Nifty Auto Index TRI has given a CAGR of 48.7% in the last one year, while Nifty 50 TRI has given a CAGR of 28.3% till October 31, 2024. Nifty Auto TRI has outperformed Nifty 50 TRI over 3 and 5 year periods.
Real estate is a fast growing sector
The country’s real estate market is projected to grow at a CAGR of 13.8% between 2017 to 2047, representing a whopping growth of 48 times in 30 years. The Indian real estate industry is the second largest generator of employment, contributing 18% to total employment. Nifty Realty Index TRI has returned 66% CAGR in the last one year, which is 2.3 times higher than Nifty 50 TRI in the same period. It has also outperformed the Nifty 50 on CAGR basis over the 3, 5 and 10 year periods till October 31.
How can new investors determine if investing in the Nippon India Nifty Auto and Realty Index Funds aligns with their financial goals?
Interview: Time.news Editor Meets Nitin Shah, Expert in Passive Fund Investment
Time.news Editor (TNE): Welcome, Nitin! Thank you for joining us today to discuss Nippon India Mutual Fund’s exciting new venture into the passive fund space. To start, could you give us an overview of what this launch entails?
Nitin Shah (NS): Thank you for having me! Nippon India Mutual Fund is launching two new open-ended index funds: the Nippon India Nifty Auto Index Fund and the Nippon India Nifty Realty Index Fund. These funds will track the performance of their respective indices—the Nifty Auto Index and the Nifty Realty Index—offering investors a chance to gain exposure to these sectors without the active management costs typically associated with investing.
TNE: That’s quite interesting! Why do you think Nippon India chose to focus on the auto and real estate sectors for these funds?
NS: Both sectors have shown significant growth potential in recent years. The auto sector, with the rise of electric vehicles and advancements in technology, is at a pivotal moment. On the other hand, the real estate sector has been recovering from pandemic-related challenges, particularly in residential and commercial properties. By launching these funds, Nippon India is aligning with sectors that could deliver substantial long-term returns for investors.
TNE: It’s great to see such strategic positioning! Now, for our audience who may not be familiar with passive funds, could you explain some advantages these funds offer compared to traditional active funds?
NS: Absolutely! Passive funds, like the ones being launched, typically have lower expense ratios since they aim to replicate the performance of an index rather than trying to outperform it. This translates into cost savings for investors. Additionally, they offer diversification, as they automatically spread investments across all stocks in the index, reducing the risk associated with individual stock performance. Lastly, they often provide better long-term performance after fees due to that lower cost structure.
TNE: That’s very informative. The NFO for these funds opens on November 14, 2024, and closes on November 28. What should potential investors keep in mind during this period?
NS: Timing is crucial, but what’s more important is understanding your investment goals. Investors should consider their risk tolerance, investment horizon, and how these funds fit within their overall portfolio. It’s also vital to review the underlying indices and understand the types of companies that compose them—this could help investors gauge whether they believe in the potential growth of the auto and real estate sectors in the coming years.
TNE: Wise advice! Would you say that this NFO is a good entry point for new investors wanting to participate in these sectors?
NS: I believe it could be, especially for investors who are looking for a systematic approach to investing. Passive funds can be particularly appealing for beginners, as they don’t require the same level of research and monitoring that active investing does. It’s a straightforward way to get exposure to these sectors, but, of course, like all investments, it’s essential to do your due diligence.
TNE: Thank you, Nitin! Lastly, where do you see the future of passive investing heading in India?
NS: The future looks promising. With increasing market awareness and the growing acceptance of index investing, I expect more investors will recognize the benefits of passive funds. As financial literacy improves, more people will turn to these options, which will likely lead to a broader range of passive products tailored to different sectors and themes. The market is evolving, and these new offerings from Nippon India are a testament to that change.
TNE: That’s a hopeful outlook! Thank you so much for sharing your insight today, Nitin. We really appreciate your time.
NS: My pleasure! Thank you for having me.