The economic disruptions due to COVID-19 pandemic have made investors more cautious with how they spend their money. Despite the adverse circumstances that most businesses faced due to the crisis, stock markets and benchmark indices have stayed resilient.
As the buoyant markets attract investors, passive mutual fund categories like exchange traded funds (ETFs) are drawing interest as they offer investors a convenient option to park their money while giving them more control over the stocks in their portfolio. Not to forget, they have a low expense ratio which makes them an attractive bet.
The surge in interest is also drawing many fund houses like Axis Mutual Fund to venture into the niche category. The fund house recently launched a new fund ‘Axis Consumption ETF’, which will track the Nifty Consumption India Index. The NFO will be investing the collected corpus in sectors like media and entertainment, telecom, automobiles and food processing, among others.
Raghav Iyengar, Chief Business Officer at Axis AMC talked to YS Media to decode the buzz around ETFs, the fund house’s reasons for venturing into the category and the benefits that investors can expect from the NFO in an engaging fireside chat.
Here are the key takeaways from the discussion:
Cost-effectiveness, no selection bias make ETFs a good bet
Talking about ETFs in India, Raghav said that one of the key reasons behind their popularity was the fact they are passively managed and hence more cost effective. “These funds usually track a benchmark or a market index unlike active funds wherein the fund manager brainstorms and picks stocks. Actively managed funds charge a little higher fee because of the involvement of a fund manager,” he said.
Another reason that he thought worked in ETFs’ favour was that they did away with the bias of security selection. “Sometimes, an investor may buy or sell a stock based on what they might hear or read about a certain stock. That is not possible with ETFs because you are buying stocks across sectors.”
Raghav observed that a large number of millennial investors who like to be in control of the stocks that they are buying or selling was also driving interest in this category of niche funds.
Consumption sector: a space teeming with opportunities
Raghav also talked extensively about Axis MF’s decision to launch in NFO that was linked to the consumption sector. “For starters, India is on its way to becoming a consumption economy in the future. We have one of the youngest populations in the world, our GDP has crossed $2 trillion and the rise in digitalisation have enabled the sector to grow massively over the years.”
Citing the example of the US, he said, the country’s economy rose significantly at the back of a consumption-led push post World War II. “Even in China in 1999, its consumption economy took off after the country launched widespread market-related reforms. We are seeing something similar happening in India. One way to capture this momentum is to opt for the right blend of stocks in consumption-driven companies.”
Minting gains with NIFTY
Talking about why Axis MF chose Nifty Consumption India Index as the benchmark for its NFO, he said, “The index is an offshoot of the NIFTY 50, which is one of the most well-performing indices in the country. More importantly, it has a lower beta as compared to the market. It means that when the market falls, the index tends to fall at a much lower pace.”
What investors should look out for
Raghav explained that the Axis Consumption ETF is a tight index with just 30 stocks featuring big brands. “If you buy these stocks individually, you would need a fair amount of money. However, with this fund, you would be able to buy these stocks at a lower price. Moreover, investors can build a strong portfolio by investing in the index regularly,” he added.
He said what set the NFO apart from other Axis MF offerings was market exposure. “If you invest in a regular fund by Axis MF, you are likely to get a more diversified basket of products, which increases your market exposure. With Axis Consumption ETF, you are only exposed to the consumption sector.”
Source: Axis MF Research
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Product Labelling:
(The product labelling assigned during the New Fund Offer is based on internal assessment of the Scheme Characteristics or model portfolio and the same may vary post NFO when actual investments are made)
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