A Slew of Index Funds from Mirae Asset Mutual Funds on Offer: Should You Invest?

October 16, 2024 Mutual Fund

In the calendar year 2024, Mirae Asset Mutual Fund has come up with several NFOs and a majority of them have been from the passive investment category — either equity-oriented exchange-traded funds or Index Funds.

Given the fascination for the passive style of investing of late, particularly index funds, and also because certain diversified equity funds haven’t been able to generate a noticeable alpha or outperformance compared to the benchmark, Mirae Asset Mutual Fund capitalising on market sentiments is focusing on building its product basket by launching New Fund Offers (NFOs) of passive funds.

Currently, the fund house has launched three Index Funds:

Let’s understand each of these Schemes in detail.

Mirae Asset Nifty Total Market Index Fund

This is an open-ended equity mutual fund scheme replicating/tracking the Nifty Total Market Total Return Index.

Under normal circumstances, 95% to 100% of the net assets of the Scheme will be invested in stocks constituting the Nifty Total Market Index. This would be done by investing in all the stocks comprising the Nifty Total Market Index in the same weightage that they represent in the Nifty Total Market Index.

The Scheme may also take exposure to equity derivatives of the index itself or its constituent stocks may be undertaken when equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period which shall not exceed 7 days.

The exposure to derivatives will be rebalanced to align with the underlying index changes in weights or constituents. Index futures/options are meant to be an efficient way of buying/selling an index compared to buying/selling a portfolio of physical shares representing an index for ease of execution and settlement. It can help in reducing the Tracking Error in the Scheme.

Index futures/options may avoid the need for trading in individual components of the index, which may not be possible at times, keeping in mind the circuit filter system and the liquidity in some of the individual stocks.

Index futures/options can also help reduce the transaction costs and the processing costs on account of the ease of execution of one trade compared to several trades of shares comprising the underlying index and will be easy to settle compared to a physical portfolio of shares representing the underlying index. In the case of investments in index futures/options, the risk/reward would be the same as investments in a portfolio of shares representing an index.

That being said, the Scheme will not maintain any leveraged or trading positions. Exposure to such derivatives will be restricted to 20% of the net assets of the scheme.

The Scheme also intends to engage in stock lending, but not more than 20% of the net assets can generally be deployed in stock lending and not more than 5% of the net assets can generally be deployed in Stock Lending to any single approved intermediary i.e. broker.

Up to 5% of the net asset of the Scheme would be invested in money market instruments/debt securities, instruments and/or units of debt/liquid schemes of domestic mutual funds. This is mainly to maintain the liquidity requirements of the Scheme.

The Debt Securities (including money market instruments) could be fixed rate or floating rate, listed, unlisted, privately placed, or unrated among others, as permitted by regulation.

The pending deployment of funds of the Scheme in securities in terms of investment objectives of the Scheme a mutual fund can invest the funds of the Scheme in short-term deposits of scheduled commercial banks (as per Clause 12.16 of SEBI Master Circular dated June 27, 2024).

Mirae Asset Nifty Total Market Index Fund does not intend to undertake/ invest/ engage in:

• ADR/ GDR / Foreign Securities
• Securitized Debt
• Debt Instruments with Structured obligation/Credit enhancements
• Repo in Corporate Debt Securities
• Short selling
• Credit default swaps
• Unrated Debt instruments
• Instruments having Special Features (as defined under clause 12.2 of SEBI Master Circular dated June 27, 2024)
• REITs and InvITs
• Fund of Fund Scheme

The investment objective of the scheme is to generate returns, before expenses, that are commensurate with the performance of the Nifty Total Market Total Return Index, subject to tracking error.

There is no assurance or guarantee that the investment objective of the scheme will be achieved.

Under normal market circumstances, such tracking error is not expected to exceed 2% p.a. for daily 12-month rolling return. However, in case of events like dividends received from underlying securities, and market volatility during rebalancing of the portfolio following the rebalancing of the underlying index, etc. or in abnormal circumstances the tracking error may exceed the above limits, and corrective action will be taken to bring it within the aforesaid limit. Since the Scheme is an Index Fund, it will endeavour that at no point of time the Scheme will deviate from the index.

To achieve the investment objective, the Mirae Asset Nifty Total Market Index Fund will be managed passively with investments in stocks comprising of Nifty Total Market Total Return Index subject to tracking error. Since the Scheme is an index fund, it will only invest in securities constituting the Underlying Index.

However, due to corporate action in companies comprising the index, the Scheme may be allocated/allotted securities which are not part of the index. Such holdings would be rebalanced within 7 Days from the date of allotment/listing of such securities.

Further, to meet the liquidity requirements debt and money market instruments, and/or units of debt/liquid schemes of domestic Mutual Funds as well as engage in stock lending (as mentioned above).

The performance of the Scheme will be benchmarked against the Nifty Total Market Total Return Index.

The Nifty Total Market Total Return Index (launched on October 31, 2021, with the base date as April 1, 2005) tracks the performance of 750 stocks covering large, mid, small and microcap segments via a single index. All stocks that are part of the Nifty 500 index and Nifty Microcap 250 index form part of the Nifty Total Market index.

Image 1: Nifty Total Market Cap Pyramid

(Source: Mirae Asset Mutual Fund Investor Presentation) 

As regards the Stock’s weight, it is based on its free-float market capitalization. This Index is reconstituted on a semi-annual basis in March and September.

At present, the top constituents of this index are as under:

Table 1: Top 10 Constituents of the Nifty Total Market Index

(Source: NSE Indexogram Factsheet as of September 2024) 

The Nifty Total Market Total Return Index, as the name suggests, has representation across market capitalisation segments and sectors.

Since the base date of April 1, 2005, the Nifty Total Market Index has clocked a price return of 14.3% CAGR and a total return (which includes dividends) of 15.9% (as of September 30, 2024).

Graph 1: Long-term Performance of Nifty Total Market Index

Past performance is not indicative of future returns.
(Source: NSE Indexogram Factsheet as of September 2024) 

Since the lows of the COVID-19 pandemic, as depicted by the Graph above, the Nifty Total Market Index has seen a phenomenal run-up, creating wealth for investors.

Nifty Total Market Index provides coverage of approximately 96% of the full market cap of companies listed on the National Stock Exchange (NSE). Moreover, the index covers all 22 sectors classified by NSE.

Currently, the trailing P/E ratio of the Nifty Total Market Index is 28x, which cannot be construed as reasonable.

While the fund is for investors with a very high-risk appetite, it is important to keep an investment horizon of around 5 years whereby the margin of safety can be reasonably adjusted.

To know more about the Mirae Asset Nifty Total Market Index Fund, read the Scheme Information Document and Key Information Memorandum.

Mirae Asset Nifty LargeMidcap 250 Index Fund

This is an open-ended equity scheme replicating/tracking the Nifty LargeMidcap 250 Total Return Index. It provides investors exposure to large & midcap segments of the market that offer potential market stability and high growth.

Image 2: Composition of the Nifty LargeMidcap 250 Index

(Source: Mirae Asset Mutual Fund Investor Presentation) 

Under normal circumstances, the Mirae Asset Nifty LargeMidcap 250 Index Fund will invest 95% to 100% of its assets in stocks constituting the Nifty LargeMidcap 250 Index. This would be done by investing in all the stocks comprising the Nifty LargeMidcap 250 Index in the same weightage that they represent in the Nifty LargeMidcap 250 Index.

In addition, the Scheme will also take exposure to equity derivatives of the index itself or its constituent stocks may be undertaken when equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period which shall not exceed 7 days. The exposure to derivatives will be rebalanced to align with the underlying index changes in weights or constituents.

However, it will not maintain any leveraged or trading positions in derivatives. Plus, the exposure to such derivatives will be restricted to 20% of the net assets of the Scheme.

Like the other index fund from the fund house, Mirae Asset Nifty LargeMidcap 250 Index Fund may also engage in stock lending, but not more than 20% of the net assets and not more than 5% of the net assets can generally be deployed in Stock Lending to any single approved intermediary i.e. broker.

The Scheme does not intend to undertake/ invest/engage in ADR, GDR, foreign securities, securitized debt, debt Instruments with Structured Obligation (SO) or Credit Enhancements (CEs), repo in corporate debt securities, instruments having special features, unrated debt instruments, short selling, credit default swaps, fund of fund scheme, REITs and InvITs.

Up to 5% of the assets for liquidity purposes would be allocated to money market instruments/debt securities, Instruments and/or units of debt/liquid schemes of domestic mutual funds.

The investment objective of Mirae Asset Nifty LargeMidcap 250 Index Fund is to generate returns, before expenses, that are commensurate with the performance of the Nifty LargeMidcap 250 Total Return Index, subject to tracking error.

There is no assurance or guarantee that the investment objective of the scheme would be achieved.

For achieving the stated investment objective, the Scheme will be passively managed with investments mainly in stocks comprising of Nifty LargeMidcap 250Total Return Index subject to tracking error.

As mentioned earlier, for liquidity only a small portion of the total net assets of the Scheme assets will be invested in debt & money market instruments, debt/liquid schemes of domestic mutual funds and may engage in stock lending activity.

The Scheme is benchmarked against the Nifty LargeMidcap 250 Total Return Index.

The Nifty LargeMidcap 250 Index (launched on November 30, 2017, with the base date as April 1, 2005) reflects the performance of a portfolio of 100 largecap and 150 midcap companies listed on NSE, represented through the Nifty 100 and the Nifty Midcap 150 index respectively.

The aggregate weight of largecap stocks and midcap stocks is 50% each and are reset on a quarterly basis.  The Index is reconstituted on a semi-annual basis along with Nifty 100 and Nifty Midcap 150 index.

At present, the top constituents of this index are as under:

Table 2: Top 10 Constituents of the Nifty LargeMidcap 250 Index

(Source: NSE Indexogram Factsheet as of September 2024) 

The Nifty LargeMidcap 250 Index offers a sector-agnostic portfolio without being biased toward one or other sectors.

Currently, it has high exposure to Financial Services (25.1%) and the least to Media, Entertainment & Publication (0.10%) as per September 2024 factsheet.

Since the base date of April 1, 2005, the Nifty LargeMidcap 250 Index has clocked a price return of 15.6% CAGR and a total return (which includes dividends) of 17.1% (as of September 30, 2024).

Graph 2: Long-term Performance of Nifty LargeMidcap 250 Index

Past performance is not indicative of future returns.
(Source: NSE Indexogram Factsheet as of September 2024) 

The total returns have been particularly accentuated in the last couple of years with a sharp run-up seen in the Indian equity market.

Investors who do not wish to have a total market index (comprising of large, mid, small and micro-cap stocks) could consider the Mirae Asset Nifty LargeMidcap 250 Index Fund.

It provides you, the investor the opportunity to participate in the India growth story with exposure to 90% of the market with diversification of largecaps (offer stability) and midcaps (offer high growth). The combined exposure to large and midcaps aims to enhance the return-to-risk ratio with a low expense ratio.

That being said, do note that the trail P/E of the Nifty LargeMidcap 250 Index is over 32x, a level that surely isn’t inexpensive.

Considering the stretch valuations, even if you have a very high-risk appetite, it is suggested to have a very small exposure to the overall equity portfolio to this index fund.

To know more about the Mirae Asset Nifty LargeMidcap 250 Index Fund, read the Scheme Information Document and Key Information Memorandum.

Mirae Asset Nifty 50 Index Fund

This is an open-ended equity scheme replicating/tracking the Nifty 50 Total Return Index. The Nifty 50 Index as you may know is a widely tracked bellwether index.

The Mirae Asset Nifty 50 Index Fund under normal circumstances will be investing up to 95% to 100% of its total assets in stocks constituting the Nifty 50 Index. This would be done by investing in all the stocks comprising the Nifty 50 Index in the same weightage that they represent in the Nifty 50 Index.

Like the other index funds, Mirae Asset Nifty 50 Index Fund will also take exposure to equity derivatives of the index itself or its constituent stocks may be undertaken when equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period which shall not exceed 7 days. The exposure to derivatives will be rebalanced to align with the underlying index changes in weights or constituents.

The Scheme will not maintain any leveraged or trading positions. The exposure to such derivatives will be restricted to 20% of the net assets of the Scheme.

Also, the Scheme may also engage in stock lending, but not more than 20% of the net assets and not more than 5% of the net assets can generally be deployed in Stock Lending to any single approved intermediary i.e. broker.

The Scheme does not intend to undertake/ invest/ engage in ADR, GDR, foreign securities, securitized debt, debt Instruments with Structured Obligation (SO) or Credit Enhancements (CEs), repo in corporate debt securities, instruments having special features, unrated debt instruments, short selling, credit default swaps, fund of fund scheme, REITs and InvITs.

Up to 5% of the assets for liquidity purposes would be allocated to money market instruments/debt securities, Instruments and/or units of debt/liquid schemes of domestic mutual funds.

The investment objective of Mirae Asset Nifty 50 Index Fund is to generate returns, before expenses, that are commensurate with the performance of the Nifty 50 Total Return Index, subject to tracking error.

There is no assurance or guarantee that the investment objective of the scheme would be achieved.

To achieve the state investment objective, the Scheme will be passively managed, and the investment strategy of the Scheme will be to invest in a basket of securities forming part of the Nifty 50 Index in similar weight proportion.

The investment strategy would revolve around reducing the tracking error to the least possible through regular rebalancing of the portfolio, taking into account the change in weights of stocks in the Index as well as the incremental collections/redemptions in the Scheme. A small part of the funds may be invested in debt and money market instruments, to meet the liquidity requirements.

Thus, the Scheme is benchmarked against the Nifty 50 Total Return Index.

As you may know, the Nifty 50 Index (launched on April 22, 1996, with the base date as November 3, 1995) is a well-diversified 50 stock index and it represents important sectors of the economy.

The Nifty 50 Index represents about 59% of the free float market capitalization of the stocks listed on the NSE.

The Nifty 50 Index has evolved over the years and aims to capture the changing dynamics of the Indian largecap segment of the equity market.

At present, the top constituents of this index are as under:

Table 3: Top 10 Constituents of the Nifty 50 Index

(Source: NSE Indexogram Factsheet as of September 2024) 

The Nifty 50 Index has representation across sectors, with the highest being financial services currently (32.9%) and the least being capital goods (0.8%) as per September 2024 factsheet.

Since the base date of November 3, 1995, the Nifty 50 Index has clocked an impressive CAGR of around 12% (as of September 30, 2024).

Graph 3: Long-term Performance of Nifty 50 Index

Past performance is not indicative of future returns.
(Source: NSE Indexogram Factsheet as of September 2024) 

For investors who wish to predominantly have a largecap oriented frontline equity portfolio, the Mirae Asset Nifty 50 Index Fund is a suitable choice. It is a low-cost option to gain exposure to the top 50 blue-chip companies listed on the NSE.

Currently, valuations in largecaps are lower than the 5-year average and reasonably placed compared to midcaps, smallcaps and microcaps. The trail P/E of the Nifty 50 Index Fund is at 24.6x, relatively reasonable.

That being said, it is important that you assume a very high-risk appetite and an investment time horizon of around 5 years.

To know more about the Mirae Asset Nifty 50 Index Fund, read the Scheme Information Document and Key Information Memorandum.

Who Will Manage These Schemes?

All three schemes will be co-managed by Ms. Ekta Gala and Mr. Vishal Singh.

Ekta has over 6 years of experience as a dealer. Before this assignment, Ms. Ekta Gala was associated with ICICI Prudential Asset Management Company Ltd.

Ekta is a commerce graduate (B.Com) and has done her Inter CA (IPCC).

Vishal has over 5 years of experience in the field of financial services. Before this assignment, Vishal was associated with NSE Indices Limited.

He is a commerce graduate (B.Com), a Chartered Accountant (CA), a Chartered Financial Analyst, and a certified Financial Risk Manager (FRM).

The duo co-manages various other equity-oriented ETFs at Mirae Asset Mutual Fund.

How Much is the Minimum Investment in these Schemes?

During the NFO period and on a continuous basis the minimum investment in these index funds of Mirae Asset Mutual Fund is Rs 5,000 per application and in multiples of Re. 1 thereafter.

The Schemes offer both Regular Plan and Direct Plan to invest and the Growth Option and Income Distribution cum Capital Withdrawal (IDCW)option.

Mirae Asset Mutual Fund as a fund house follows robust investment processes and systems. However, make sure you are investing in schemes that are in congruence with your personal risk profile, broader investment objective, financial goals, and the time in hand to achieve those envisioned goal/s.

Be a thoughtful investor.

Happy Investing!

This article first appeared on PersonalFN here