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Bandhan Nifty Total Market Index Fund NFO: should you invest?

This article discusses the NFO of the Bandhan Nifty Total Market Index Fund which is the second fund tracking the Nifty Total Market Index.

Bandhan Nifty Total Market Index Fund NFO: should you invest?


Posted on 21 Jun 2024
Author: Sayan Sircar
Tags: Tags Review ;  Mutual Funds
9 mins read
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This article discusses the NFO of the Bandhan Nifty Total Market Index Fund which is the second fund tracking the Nifty Total Market Index.

Bandhan Nifty Total Market Index Fund NFO: should you invest?

Disclaimer: Image from the Bandhan Mutual fund website is used for representational purpose only.

This article is a part of our detailed article series on new fund offerings (NFOs) in India. Ensure you have read the other parts here:

📚 Topics covered:

What are the details of this NFO?

Bandhan Asset Management (formerly IDFC Mutual Fund) filed a draft application with SEBI for an index (passive) mutual fund tracking the Nifty Total Market Index in Feb 2024.

This fund is an index fund that passively tracks the Nifty Total Market Index. The Nifty Total Market Index is an index (like the SENSEX or Nifty 50) tracking all (actually, the top 750) stocks in the National Stock Exchange (NSE). To put this into perspective, the popular Nifty 50 index tracks the top 50 stocks measured by free-float market capitalisation. The order of the indices looks like this:

  • Top 50: Nifty 50
  • From 51 to 100: Nifty Next 50
  • Top 100: Nifty 100
  • From 101 to 250: Nifty Midcap 150
  • Top 200: Nifty 200
  • From 251 to 500: Nifty Smallcap 150
  • Top 500: Nifty 500
  • From 501 to 750: Nifty Microcap 250
  • Top 750: Nifty Total Market Index

As per the NSE website:
The index aims to track the performance of 750 stocks covering large, mid, small and microcap segments.

The NFO period for this fund is from June 24 to July 5, 2024.

What is the Nifty Total Market Index?

The Nifty Total Market Index consists of the Top 750 stocks as per free-float (the amount of the market capitalisation available for trading in the stock exchange) market capitalisation. Therefore the index contains all the Large-cap (Top 100), Mid-cap (101-250), Small-cap (251-500) and Micro-cap (501-750) indices in the same index.

Since the entire index is weighted by free-float market capitalisation, the allocation to each category is as follows, according to the Bandhan website:

  • Large-cap (1 to 100): 70%
  • Mid-cap (101 to 250): 17%
  • Small-cap (251 to 500): 10%
  • Micro-cap (501 to 750): 3%

It is interesting that as we go down the list, the size, and hence the impact of movements in the respective segments become less and less. For example, if the Mid-cap segment doubles, the effect on the index is 17% while the same doubling for the micro-cap segment only leads to a 3% change. However, the impact of the 30% mid/small/micro-caps on the index is substantial as we will now show.

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What is the performance of the Nifty Total Market Index?

Here is how the index performed versus the Nifty 50, Nifty 100 and Nifty 500 (rebased to 1000 and starting from April 2005):

Performance of Nifty Total Market Index vs. the Nifty 50, Nifty 100 and Nifty 500

In the charts below, we will show rolling excess returns of Nifty Total Market Index vs. the Nifty 50, Nifty 100, and Nifty 500 using the Total Return Index data (price change and reinvested dividends).

What are the Rolling returns for SIP in Nifty Total Market Index?

Difference of rolling 3-year SIP returns of Nifty Total Market Index vs. the Nifty 50, Nifty 100 and Nifty 500

What are the Rolling returns for Lump sum in Nifty Total Market Index?

Difference of rolling 3-year lump sum returns of Nifty Total Market Index vs. the Nifty 50, Nifty 100 and Nifty 500

As both charts show, the Nifty Total Market Index index:

  • does not have any guaranteed outperformance vs. the larger indices. The excess returns have fluctuated around the zero line
  • the excess returns (positive and negative) vs. the Nifty 50 (with the largest stocks) are the highest and then reduce as the index size increases. The difference is least vs. the Nifty 500, which is 97% the same as the Nifty Total Market Index

Also read
How to use the SEBI Potential Risk Class matrix to understand risk in debt mutual funds?

Are there other funds which track the Nifty Total Market Index?

Before Bandhan launched the NFO, there was only one fund that tracked this index: the Groww Nifty Total Market Index fund, active since October 2023. This is a modestly expensive fund with an expense ratio of 0.25% for the direct fund (at the time of publishing).

Given the short history, there is no way to draw any meaningful conclusion about this fund. We will revisit this topic in a future article once the Groww fund completes one year.

Who should invest in the Bandhan Nifty Total Market Index Fund?

“Investors should remember that excitement and expenses are their enemies.” - Warren Buffett

The recent outperformance of the Nifty Total Market Index vs. the major indices can be an incentive for the AMC to launch such a fund. However, if you are looking to invest, you need to understand which concept is more appealing to you:

  • momentum-based signal: since the Nifty Total Market Index is going up vs. the Nifty 50, it will go up further
  • mean reversion signal: since what goes up also comes down, the outperformance of this index vs. the Nifty 50 is an indicator that the trend will reverse soon

An investor who ticks one or more of the boxes below might consider investing:

☑ Is looking for a one-fund exposure to the Indian equity market

☑ Is unwilling to manage multiple index funds (large/mid/small etc.) and their changing weights in the portfolio over time

☑ Understands and has belief in the concept of indexing or passive funds over active funds

☑ Wishes to take a market-capitalisation-based exposure without specifically overweighting/underweighting any specific slice of the market

☑ Is interested in the Total Market index as a means of completeness in exposure to the investible market

Who should not invest in the Bandhan Nifty Total Market Index Fund?

An investor who ticks one or more of the boxes below should not invest:

☑ Already has continuing SIPs in multiple index funds and does not plan to stop them

☑ Is planning to an index fund to an active fund-heavy equity fund portfolio

☑ Has not done due diligence beyond reading about this index and funds online

☑ Will be investing a very small amount or will start a small SIP. Both indicate a lack of conviction and lead to portfolio clutter: How to clean up your mutual fund portfolio?

☑ Disagrees with the Warren Buffett quotation above

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This post titled Bandhan Nifty Total Market Index Fund NFO: should you invest? first appeared on 21 Jun 2024 at https://arthgyaan.com


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