How can I spend money on Nifty Next 100 and micro-cap corporations?

Is there a easy technique to spend money on Nifty Next 100 and Nifty Microcap 250 corporations? Please recommend some ETFs (alternate traded funds) or mutual funds investing in these indexes.

—V Muralidhar Naidu

At current, there are outstanding ETFs supplied by mutual funds that make investments passively in Nifty Next 50 Index, that are Nifty 100 corporations after excluding the top-50 corporations when it comes to market capitalization (Nifty 50 corporations). While you propose to spend money on corporations past the highest 100 then you’ll be able to think about investing in Nifty Mid Cap 150 ETFs the place the funding is finished in corporations ranked 101-250 primarily based when it comes to market capitalization (m-cap). This can be like utterly investing in mid-sized market cap corporations.

There are Nifty Midcap 150 ETFs supplied by Mirae Mutual Fund (MF), ICICI Prudential MF, HDFC MF and UTI MF at current. You can spend money on any of those as all these funds are passively managed.

While investing in an ETF, you’ll be able to look into the monitoring error, which is the distinction between the returns of the index and the ETF. The decrease the monitoring error the higher the ETF.

On the microcap entrance, there’s a Motilal Oswal Nifty Mircocap 250 Index Fund, which invests within the high 250 corporations past the Nifty 500 (high 500 corporations in m-cap phrases) universe. This fund was launched in July 2023 and doesn’t have any monitor document to this point. Just a suggestion whilst you plan to spend money on the above funds, you’ll be able to attempt to diversify your funding throughout market caps and have some allocation in Nifty 50 Index too for giant cap publicity. This will allow you to to create a great steadiness throughout totally different market caps. The microcap fund carries a lot larger danger and could be unstable throughout unsure durations.

What are the prices of investing in ETFs? How is it totally different than mutual fund’s TER (whole expense ratio)?

—Name withheld on request

ETFs have one of many lowest prices among the many funds in India. As these funds are passively managed the place the portfolio follows the index and has the identical set of corporations and weightage because the index, the price of managing such funds may be very low.

Typically, the expense ratios of ETFs begin from round 0.05% as much as 0.30%, relying on the index adopted by the fund. At the identical time, ETFs are listed on the inventory alternate and one must have a demat account to spend money on ETFs. It is kind of uncommon for any inventory broking firm to cost brokerage on ETF transactions identical to shares, however there are a couple of brokers who do it.

Actively managed funds do have the next expense ratio as these funds are managed by fund managers and analysis groups, who construct portfolios searching for to beat the returns generated by the index or the fund’s benchmark. The energetic funds have fund administration and distribution value within the TER, which may be very unlikely in Index ETFs.

However, to construct a great mutual fund portfolio for the long run, one can create a mix of passive ETFs or index funds and actively managed funds, as there’s nonetheless loads of potential to generate alpha (outperform index) in India. There remains to be ample alternative and scope for fund managers to establish high-return potential shares throughout indices and market capitalization. More so within the mid- and small-cap area.

Harshad Chetanwala is co-founder of MyWealthGrowth.com

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Updated: 07 Sep 2023, 10:58 PM IST