Tata Digital India Fund: A Smart Investment Strategy

Tata Digital India Fund is a mutual fund scheme from Tata Mutual Fund. It was launched on 4 December 2015 and is currently managed by Meeta Shetty. The fund seeks long-term capital appreciation by investing at least 80% of its net assets in equity and equity-related instruments of companies in the information technology sector in India. The fund has an expense ratio of 0.35% and an exit load of 0.25% if redeemed within 30 days. The latest NAV available is ₹60.42 as of 18 October 2024. The fund has delivered average annual returns of 22.63% since its inception and has doubled the money invested in it every four years.

How to invest in Tata Digital India Fund

Investing in the Tata Digital India Fund can be done directly from the Tata Mutual Fund website. Alternatively, you can use platforms like MF Central and MF Utility, and Paytm Money, or seek help from a mutual fund distributor or your bank.

The Tata Digital India Fund has two plans: Regular and Direct. The only difference between the two is that the Regular plan has a higher expense ratio because it includes commission to your mutual fund broker/distributor. Therefore, the Direct plan leads to higher returns for investors.

The minimum SIP amount to invest in the Direct-Growth plan of the Tata Digital India Fund is ₹100, while the minimum lumpsum investment is ₹5,000. The fund has an expense ratio of 0.35% and an exit load of 0.25% if redeemed within 30 days.

The Tata Digital India Fund is a Sectoral-Technology fund that has been in existence since December 2015. It has delivered average annual returns of 22.63%-22.64% since its inception and has doubled the money invested in it every four years. The fund's objective is to seek long-term capital appreciation by investing at least 80% of its net assets in equity/equity-related instruments of companies in the Information Technology Sector in India.

As of October 2024, the NAV or Net Asset Value of the fund was ₹60.42, and its AUM or Asset Under Management was ₹12,052 Crore. The fund is considered to have very high risk and is suitable for investors who are ready for the possibility of moderate to high losses even when the overall market is performing better.

Direct vs. Regular plans

When considering investing in the Tata Digital India Fund, it is important to understand the difference between Direct and Regular plans. Both options are identical, except for the commission paid to your mutual fund broker or distributor. As an investor, you are not required to pay any additional fees to purchase either option. However, the two plans have different expense ratios. Regular plans have a higher expense ratio, while Direct plans have a lower expense ratio. This difference is due to the commission paid to the broker or distributor.

The Expense Ratio is an annual fee that you pay to the mutual fund house for managing your investments. It is a percentage of the fund's assets used for administrative, management, advertising, and other expenses. A lower expense ratio leads to higher returns for investors, as a smaller portion of the returns is deducted as a fee.

For example, as of October 2024, the Tata Digital India Fund Direct Plan has an expense ratio of 0.35%, while the Regular Plan has an expense ratio of 1.66%. This means that for every ₹10,000 invested, the Direct Plan would charge ₹200 as fees, while the Regular Plan would charge ₹332.

In addition to the expense ratio, it is important to consider other factors such as investment objectives, risk tolerance, and the performance of the fund. Make sure to review the fund's prospectus and seek financial advice before making any investment decisions.

Capital gains taxation

Long-Term Capital Gains (LTCG):

• If you sell your mutual fund units after holding them for more than one year from the date of investment, any gains up to ₹1 lakh in a financial year are exempt from tax.
• Gains exceeding ₹1 lakh are taxed at a rate of 10%.
• If you sell your units after holding them for more than one year and generate long-term capital gains exceeding ₹1.25 lakh in a financial year, the excess amount above ₹1.25 lakh is taxed at a rate of 12.5%.

Short-Term Capital Gains (STCG):

• If you sell your mutual fund units within one year from the date of investment, the entire amount of gain is taxed at a rate of 15%.
• In some cases, short-term capital gains may be taxed at your income tax slab rate.

Dividend Taxation:

• Dividends received from the Tata Digital India Fund are added to your income and taxed according to your income tax slab.
• If your dividend income exceeds ₹5,000 in a financial year, the fund house will deduct a Tax Deducted at Source (TDS) of 10% before distributing the dividend.

It is important to note that the capital gains taxation rules may change over time, and you should consult the latest guidelines provided by the fund house and tax authorities. Additionally, there may be other taxes and fees associated with investing in mutual funds, such as expense ratios and exit loads, which you should also consider when making investment decisions.

Portfolio analysis

The Tata Digital India Fund is a mutual fund scheme that seeks long-term capital appreciation by investing at least 80% of its net assets in equity/equity-related instruments of companies in the information technology sector in India. The fund has provided a consistent return and has outperformed other funds in its category over the last five years.

Risk Analysis

• The fund has a very high risk as per SEBI's Riskometer.
• The fund has a beta value of 0.47, indicating that it is less volatile than the market.
• The standard deviation of the fund is 4.16, which is lower than the category average of 4.72, suggesting more predictable performance.
• The fund has a Sharpe ratio of 0.89, which is higher than the category average of 0.42, indicating better risk-adjusted performance.

Returns Analysis

• The fund has delivered average annual returns of 22.63%-22.64% since its inception eight years ago.
• The fund has doubled the money invested every four years.
• The one-year returns of the fund are 46.44%.
• The fund has generated consistent returns and has outperformed other funds in its category.

Asset Allocation

• The fund primarily invests in the Technology, Services, Communication, and Capital Goods sectors.
• The fund has 94.57%-94.75% of its assets invested in equity, with the remaining invested in Cash & Cash Equivalents.
• The fund's top holdings include Infosys Ltd., Tech Mahindra Ltd., Tata Consultancy Services Ltd., HCL Technologies Ltd., and Wipro Ltd.

Expenses and Taxation

• The fund has an expense ratio of 0.35%, which is lower than that of other funds in its category.
• Short-term capital gains are taxed at 20% if the investment is redeemed before one year.
• Long-term capital gains are taxed at 12.5% on returns of ₹1.25 lakh or more in a financial year.
• There is no tax if the mutual fund units are held without redemption.
• Dividends are taxed according to the investor's tax slab. If an investor's dividend income exceeds ₹5,000 in a financial year, a TDS of 10% is deducted by the fund house before distributing the dividend.

Returns and rankings

Tata Digital India Fund Direct-Growth has generated a return of 46.44% in the last year and has delivered average annual returns of 22.64% since its inception. The fund has doubled the money invested in it every four years. The fund's ability to deliver returns consistently is in line with most funds in its category, and its ability to control losses in a falling market is average.

The fund has the majority of its money invested in the Technology, Services, Communication, and Capital Goods sectors. It has taken less exposure in the Technology and Services sectors compared to other funds in the category.

The fund's top holdings are in Infosys Ltd., Tech Mahindra Ltd., Tata Consultancy Services Ltd., HCL Technologies Ltd., and Wipro Ltd. The fund's total assets under management (AUM) as of 30 September 2024 are ₹12,052 Crores, and the latest NAV as of 18 October 2024 is ₹60.42.

The fund has a Very High-risk rating and is suitable for investors who have advanced knowledge of macro trends and are willing to take selective bets for higher returns. The fund has a Standard Deviation value that indicates volatile fund returns, and a Beta value that shows volatile fund performance compared to similar funds in the market. The fund's Sharpe ratio and Treynor's ratio indicate poor risk-adjusted returns.

Frequently asked questions