Investing In Nifty Bank Index Fund: A Comprehensive Guide

The Nifty Bank Index Fund is an open-ended sectoral-banking equity scheme that invests in companies whose securities are included in the Nifty Bank Index. The investment objective of the fund is to achieve returns that correspond to the performance of the Nifty Bank Index, subject to tracking errors. The fund seeks to invest in all the stocks comprising the Nifty Bank Index in the same weightage that they represent in the index.

There are multiple Nifty Bank Index Funds offered by different fund houses, such as Motilal Oswal, ICICI Prudential, and Navi. The expense ratios, exit loads, and tax implications vary for each fund, so it is important to carefully review the scheme-related documents before investing.

The Nifty Bank Index Fund is considered a high-risk investment, and investors are advised to avoid funds with a narrowly defined investment mandate. It is recommended to invest only through the SIP route, and not to invest in this or any other banking sector fund if you need to redeem your investment in less than seven years.

Investment options and minimum amounts

When it comes to investment options and minimum amounts, there are several Nifty Bank Index Funds to choose from, each with its own set of features. Here is an overview of some popular options:

Motilal Oswal Nifty Bank Index Fund:

This fund offers both SIP (Systematic Investment Plan) and lumpsum investment options. The minimum SIP investment amount is ₹500, while the minimum lumpsum investment is also ₹500. There is no lock-in period for this fund. The expense ratio is 0.33%, and the fund has a Very High-risk rating.

ICICI Prudential Nifty Bank Index Fund:

ICICI Prudential offers a Nifty Bank Index Fund with a minimum SIP investment of ₹1,000 and a minimum lumpsum investment of ₹1,000. There is no exit load for this fund, and it is also rated as a Very High-risk investment. The expense ratio is 0.2% or 0.82%, depending on the source.

Navi Nifty Bank Index Fund:

The Navi Nifty Bank Index Fund offers a minimum SIP amount of ₹10 and a minimum lumpsum amount of ₹10. This fund does not have an exit load, and the expense ratio is not specified. It is rated as an equity sectoral-banking fund.

Other Options:

In addition to the above-mentioned funds, there are other Nifty Bank Index Funds available from providers like Groww and Value Research. These funds may have different investment options and minimum amounts, so it is essential to review their specific details before investing.

It is important to remember that mutual funds are subject to market risks, and past performance does not guarantee future results. Investors should carefully review the scheme-related documents and consider their financial goals and risk tolerance before investing.

Returns and rankings

The Motilal Oswal Nifty Bank Index Fund - Direct Plan has no lock-in period and is currently ranked as a very high-risk investment. As of 25 October 2023, the fund's net asset value (NAV) was ₹15.8179. As of 30 September 2023, the fund had an asset under management (AUM) of ₹431 Cr. The expense ratio of the fund is 0.33.

The fund has delivered returns of 11.74% since its inception and its returns are currently better than the category average. The fund's portfolio is largely conservative, with most holdings in Large Cap stocks and debt instruments.

The Motilal Oswal Nifty Bank Index Fund - Regular Plan - Growth is ranked within the Index Funds/ETFs category. The benchmark for this fund is the Nifty Bank TRI. The latest returns data is based on the NAV as of 30 August 2024.

The Motilal Oswal Nifty Bank Index Fund - Direct Plan - Growth is ranked within the Index Funds/ETFs category. The latest returns data is based on the NAV as of 16 October 2024.

Expense ratio, exit load and tax

The Motilal Oswal Nifty Bank Index Fund has an expense ratio of 0.33%, which is the fee you pay to the fund house for managing your investments. The expense ratio is a percentage of the Assets Under Management (AUM) and is taken out of the returns generated by the fund.

The fund has an exit load of 1% if redeemed within 15 days of investment. An exit load is a fee payable to the fund house for exiting a fund before the completion of a specified period from the date of investment.

In terms of taxation, if you redeem your investment within one year, returns are taxed at 20%. If you redeem after one year, returns exceeding Rs 1.25 lakh in a financial year are taxed at 12.5%. These taxes are categorized as short-term and long-term capital gains, depending on your holding period.

Fund house and investment objective

The Nifty Bank Index Fund is offered by multiple fund houses, including Motilal Oswal, ICICI Prudential, and Navi. Each fund has a different investment objective, but they all aim to track the performance of the Nifty Bank Index.

Motilal Oswal Nifty Bank Index Fund

Motilal Oswal Mutual Fund launched the Motilal Oswal Nifty Bank Index Fund on December 29, 2009. The fund seeks investment returns that correspond to the performance of the Nifty Bank Index, subject to tracking errors. The fund has a high-risk rating and a minimum investment amount of ₹500. The asset under management (AUM) is ₹61,382 Cr, and the latest NAV is ₹19.84 as of September 27, 2024.

ICICI Prudential Nifty Bank Index Fund

The ICICI Prudential Nifty Bank Index Fund is a mutual fund scheme launched by ICICI Prudential Mutual Fund on October 12, 1993. The investment objective of this fund is to invest in companies that are part of the Nifty Bank Index and to achieve the returns of that index, subject to tracking errors. The scheme is managed by Nishit Patel, Priya Sridhar, and Ajay Kumar Solanki. The fund has a very high-risk rating, and the minimum investment amount is ₹1,000. The AUM is ₹7,81,394 Cr, and the latest NAV is ₹14.69 as of August 30, 2024.

Navi Nifty Bank Index Fund

The Navi Nifty Bank Index Fund seeks to achieve returns equivalent to the Nifty Bank Index by investing in the stocks of companies comprising the index, subject to tracking errors. The minimum SIP and lumpsum investment amounts are ₹10. The latest NAV is ₹12.77 as of May 24, 2024, and the fund has a five-year annualized return of 0.00%.

Asset allocation and portfolio composition

Asset allocation refers to the mix of different investment assets in your portfolio. It describes the proportion of stocks, bonds, and cash that make up your investment portfolio.

The Motilal Oswal Nifty Bank Index Fund is a mutual fund scheme that has been in existence for 5 years and 1 month, with an expense ratio of 0.33%. As of August 31, 2024, the fund's asset allocation was 99.88% equity, 0.05% debt, and 0.07% other. The fund's top holdings include HDFC Bank Ltd. (28.02%), ICICI Bank Ltd. (24.41%), Kotak Mahindra Bank Ltd. (10.2%), and State Bank of India (9.88%).

When investing in the Motilal Oswal Nifty Bank Index Fund, it is important to consider the fund's asset allocation and how it aligns with your investment goals and risk tolerance. The fund's asset allocation is primarily in equity, which can offer the potential for higher returns but also comes with higher volatility and risk.

Additionally, the fund's performance and returns should be considered. As of October 1, 2024, the fund's NAV was 19.51, and it has delivered average annual returns of 13.78% since its inception. The fund has doubled the money invested in it every four years and has a rating of "Very High" risk.

It is also worth noting that the fund's holdings are mostly in Large Cap stocks and debt instruments, indicating a conservative investment strategy. This means that the fund may be suitable for investors seeking a more stable and secure investment option.

Overall, when considering asset allocation and portfolio composition for the Motilal Oswal Nifty Bank Index Fund, investors should evaluate their financial goals, risk tolerance, and investment horizon to determine if the fund's equity-focused strategy aligns with their investment objectives.

Frequently asked questions