Tata Digital India Fund: Is It Worth Investing In?

The Tata Digital India Fund is a mutual fund scheme from Tata Mutual Fund that 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 been in existence for over 8 years and has generated average annual returns of 22.63% since its launch. With an expense ratio of 0.35%, it has the lowest expense ratio among actively and passively managed sectoral-technology funds. The fund has generated consistent returns and has outperformed other funds in its category over the last 5 years. However, it ranks lower in terms of protection against volatility. The fund is suitable for investors with advanced knowledge of macro trends and a high-risk appetite.

Historical performance of Tata Digital India Fund

The Tata Digital India Fund has been in existence for almost nine years, having been launched on 4 December 2015. Since its launch, it has delivered average annual returns of 22.63% to 22.64%. The fund has doubled the money invested in it every four years.

The fund's returns of the last 1-year are 46.44%. In the last 3 years, the fund has returned 43.37%, and since its launch, it has returned 497.52%.

The Tata Digital India Fund's NAV or Net Asset Value was ₹60.42 as of 18 October 2024.

The fund has generated consistent returns, outperforming other Sectoral-Technology funds in the last 5 years. For every unit of risk, the fund produces 20% more in returns. The fund has the lowest expense ratio among actively/passively managed Sectoral-Technology funds.

The fund has ₹12,052 Crore worth of assets under management (AUM) as of 30 September 2024 and is considered a medium-sized fund in its category. The expense ratio of the fund is 0.35%, lower than what most other Sectoral-technology funds charge.

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 considered average.

Expense ratio and exit load

The Tata Digital India Fund has an expense ratio of 0.35%, which is lower than what most other Sectoral-Technology funds charge. The expense ratio is the annual charge you pay to the mutual fund company for managing your investments in that fund. It is a percentage of the Assets Under Management (AUM) and is taken from the returns generated by the fund. Therefore, a fund with a lower expense ratio is always better as a smaller part of the returns will be taken, leaving more returns for you.

The fund has an exit load of 0.25% if redeemed within 30 days. This means that if you exit the fund within 30 days of investing, you will be charged 0.25% of your investment as a fee. If you redeem after 30 days, there is no exit load.

Capital gains taxation

When considering investing in the Tata Digital India Fund, it is important to understand the associated capital gains taxation. Capital gains taxation depends on whether the investment is held for the short term or long term. If the mutual fund units are sold within 1 year of the date of investment, the entire amount of gain is taxed at a rate of 15% or 20%. If the units are sold after 1 year, gains up to Rs 1 lakh in a financial year are exempt from tax, while gains over Rs 1 lakh are taxed at a rate of 10% or 12.5%. No tax is payable as long as the units are held and not redeemed. Dividends are taxed according to the investor's tax slab, and if an investor's dividend income exceeds Rs. 5,000 in a financial year, a TDS of 10% is deducted by the fund house before distributing the dividend.

Investment options

The Tata Digital India Fund is a mutual fund scheme from Tata Mutual Fund 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 been in existence for over 8 years, having been launched on 4 December 2015.

Regular vs Direct Plans

Regular and Direct plans of the fund are the same except for the commission paid to a mutual fund broker/distributor. As an investor, you do not need to pay any additional fees for either option. However, the regular plan has a higher expense ratio, which leads to lower returns for investors. The direct plan has a lower expense ratio, which means more returns for investors.

SIP vs Lump Sum Investment

SIP (Systematic Investment Plan) allows you to invest a fixed amount in the fund at regular intervals (usually monthly). This helps in rupee-cost averaging and also makes it a more manageable investment option. On the other hand, a lump-sum investment is a one-time investment of a larger amount.

Short-Term vs Long-Term Investment

Tata Digital India Fund has delivered average annual returns of around 22-23% since its inception. If you invest for the short term (less than a year), your returns will be taxed at 20%. For long-term investments (more than a year), you will pay tax on returns of over ₹1.25 lakh at 12.5%.

Risk and Volatility

The fund has a "Very High-risk" rating. While it has been one of the best in generating consistent returns in its category, it ranks lower in terms of protecting against volatility. The standard deviation and beta values indicate that the fund's returns have been more volatile compared to similar funds in the market.

Exit Load

The fund has an exit load of 0.25% if redeemed within 30 days. This means that if you withdraw your investment before 30 days, you will be charged a small percentage of your total investment as a fee.

Fund Manager

The current fund manager of the Tata Digital India Fund is Danesh Mistry.

AUM (Asset Under Management)

As of 30 September 2024, the fund had an AUM of ₹12,052 Crores, making it a medium-sized fund in its category.

Expense Ratio

The expense ratio of the direct plan of the Tata Digital India Fund is 0.35%, which is lower than what most other Sectoral-Technology funds charge.

Top Holdings

The fund's top holdings include investments in Infosys Ltd., Tech Mahindra Ltd., Tata Consultancy Services Ltd., HCL Technologies Ltd., and Wipro Ltd.

Investment Objective

The investment objective of the Tata Digital India Fund is to seek long-term capital appreciation by focusing on the Information Technology Sector in India.

Fund House Contact Details

The fund house, Tata Mutual Fund, can be contacted at:

• 9th Floor, Mafatlal Centre, Nariman Point, Mumbai 400021
• Email: [email protected]
• Website: www.tatamutualfund.com

Risk analysis

Market Risk

The Tata Digital India Fund carries a very high risk, as indicated by its risk rating and SEBI's Riskometer. This means that there is a significant possibility of negative returns on your investment. The fund's sensitivity to market changes is higher than that of the market itself, making it more volatile. This volatility is reflected in its standard deviation, which measures the fund's historical returns and indicates the predictability of future performance.

Investment Risk

The Tata Digital India Fund is a sector-specific fund, investing primarily in the information technology sector. This narrow investment focus increases risk by limiting diversification. If the IT sector underperforms or is affected by negative events, the fund's performance will likely suffer.

Return Risk

The fund's returns have been mixed. While it has generated consistent returns within its category, its risk-adjusted returns are poor. This means that for the level of risk taken, the returns may not be commensurate. The fund has underperformed in beating its benchmark, and its Sharpe ratio, which measures risk-adjusted performance, is low.

Volatility Risk

The Tata Digital India Fund ranks lower in terms of protecting against volatility within its category. This means that investors are exposed to higher levels of price fluctuations, increasing the risk of losses during market downturns.

Liquidity Risk

There is a warning against investing in this fund if you need to redeem your investment within seven years. This indicates a potential liquidity risk, where early withdrawal could result in losses or reduced returns.

Expense Risk

The expense ratio of the fund is relatively low compared to other sectoral-technology funds, which is positive. However, the expense ratio is still a cost to consider, as it is an annual fee deducted from the fund's returns.

In conclusion, the Tata Digital India Fund carries a very high risk due to its sector-specific focus, volatility, and potential for negative returns. While it has generated consistent returns, the risk-adjusted performance is poor. Investors should carefully consider their risk tolerance and investment goals before investing in this fund, especially if early redemption is a possibility.

Frequently asked questions