680229 SIP myths you must know!

It is not new that the Indian mutual fund industry is gravitating towards passive investments, especially index funds. Many mutual fund houses are launching an index fund with interesting offerings.

As the name implies, an index mutual fund invests in stocks of a particular index, such as the NSE Nifty, the BSE Sensex, or the S&P 500. These are passively managed funds, which means the fund manager invests in the same securities as the underlying index and does not alter the portfolio composition. These funds seek to provide returns that are comparable to the index they monitor.

Because these funds track a market index, their returns are roughly comparable to those of the index. As a result, investors seeking predictable returns and a low-risk engage in the equity markets through these funds.

Recently, Navi Mutual Fund, part of Sachin Bansal’s BFSI group Navi, has filed for a scheme information document of its new fund offer (NFO), Navi nifty smallcap 250 index funds. This is an open-ended equity scheme that will replicate and track a nifty smallcap 250 index.

Investment strategy

The scheme’s investment aim is to provide a return comparable to the Nifty Smallcap 250 Index by investing in the stocks of companies that comprise the index, subject to tracking error. The scheme seeks to create capital appreciation over the long term for the investors.

What should investors know?

-The fund house is yet to announce its new fund offer dates.

-The scheme plans to offer regular and direct plans.

-Minimum application amount is Rs 500 and in multiples of Rs 1, thereafter.

-Maximum total expense ratio (TER) permissible by Sebi is up to 1% of daily net assets.

-The scheme falls under the ‘Very High’ category, and therefore investors should consult their financial advisers to check the product suitability.