Quantum Mutual Fund launching India’s first Nifty 50 ETF Fund Of Fund (FoF) claiming as a brand new sort of product. As Index funds are gaining recognition amongst Indians, must you spend money on Quantum Nifty 50 ETF Fund of Fund NFO?
Everyone knows that Index Funds are gaining recognition amongst Indians. Primarily due to clear definitions of funds based mostly on SEBI Recategorization, constant underperformance of main energetic funds, low value, and ease.
Mutual Fund firms making an attempt their encash this pattern by launching one-by-one Index Funds. Nevertheless, is it value contemplating all these Index Funds simply because the tagline is INDEX FUND?
Quantum Nifty 50 ETF Fund of Fund NFO – Do you have to make investments?
I’m a staunch believer in index funds. Nevertheless, on the identical time, I’m lethal towards the gimmick these mutual fund firms create in us by encashing our temper. The traditional instance is Quantum Nifty 50 ETF Fund of Fund NFO. The explanations are as under.
# Value –
They’ve their very own 14 years previous underlying the Nifty 50 ETF. The price of this ETF as per their declaration is 0.094%. That is clearly a low value in comparison with typical Index Mutual Funds (not ETF to ETF). Nevertheless, when you spend money on Quantum Nifty 50 ETF Fund of Fund, then it’s a must to bear two prices. One is the underlying ETF value and the second is the Quantum Nifty 50 ETF Fund of Fund value. Therefore, it’s a double costing product for us. Nevertheless, if the whole value is lower than the accessible Nifty 50 Index Funds, then we might say that it’s cost-effective. In any other case, a waste product.
# Taxation –
Earlier I’m of the opinion that as it’s a Fund Of Fund, the taxation is like Debt Fund. Nevertheless, one among my weblog readers pointed that the taxation of such funds is as like Fairness Funds. As a result of beneath Sec.10(23D), it was clearly talked about as under.
- A Minimal of 90% of the whole proceeds of such fund is invested within the items of such different fund; and
- Such different fund additionally invests a minimal of 90% of its whole proceeds within the fairness shares of home firms listed on a acknowledged inventory change, and
With this, it’s clear that as underlying ETF and this NFO make investments a minimum of 90% in underlying ETF and ETF once more in Indian shares means the taxation of this NFO is like an fairness fund. This can be a positivity of this product (somewhat than the negativity that I assumed earlier with the fallacious notion that taxation is sort of a debt fund).
# Monitoring Error or Monitoring Distinction –
If you happen to don’t know what’s monitoring error and monitoring distinction, then confer with my newest publish “Monitoring Distinction Vs Monitoring Error of ETF and Index Funds“. It’s a must to face two sorts of monitoring errors and monitoring variations right here. One is the underlying ETF monitoring error and distinction and one other is that this fund’s monitoring error and distinction. Have a look at the most recent monitoring error and monitoring distinction of this ETF.
Although monitoring errors and variations look much less, your Quantum Nifty 50 ETF Fund of Fund will add extra monitoring errors and monitoring variations. As a result of they will’t replicate 100% of the monitoring error and monitoring distinction of underlying ETF.
# Liquidity, SIP, and Demat Account –
This product could also be pushed to you by saying you’ll not face any liquidity points, SIP is feasible (however not in ETF), and Demat account necessities like underlying ETF. It’s true. Nevertheless, simply by these three options of this product, one can’t ignore the bills and monitoring errors or distinction pointers.
Therefore, contemplating extra negatives than positives, regardless that Quantum Mutual Fund firm could also be claiming this as India’s first Nifty 50 ETF Fund Of Fund, higher to IGNORE. Relatively both select the direct ETF (in case you are properly versed with the way it works like promoting, shopping for, and Demat account necessities) or just choose the present Nifty 50 Index Funds.
I feel it’s a futile train from a mutual fund firm by making a sort of gimmick. As a substitute, they could have created a easy low-cost Nifty 50 Index Fund.
At all times be cautious with the strikes of mutual fund firms. In case your requirement is real, then make investments. Else, an upfront NO is much better.