Axis Nifty Etf: A Smart Investment Strategy?

The Axis Nifty ETF is an Exchange Traded Fund that tracks the Nifty 50 index, which is made up of 50 large-cap companies across 12 sectors that contribute significantly to India's economic growth. ETFs are traded like common stocks on a stock exchange, offering the benefits of both index funds and stocks. The Axis Nifty ETF aims to replicate the performance of the Nifty 50 index, providing returns before expenses that correspond closely to the index's total returns. This type of fund is well-suited for conservative equity investors as they tend to fall less when stock prices decline. However, it's important to note that investing in this fund or any large-cap fund requires a long-term commitment, typically five years or more, to ride out the ups and downs of the market.

The pros of investing in Axis Nifty ETF

The Axis Nifty ETF is an Exchange-Traded Fund that tracks the Nifty 50 index, a diversified portfolio of 50 large-cap companies across 12 sectors that contribute significantly to India's economic growth. Here are some advantages of investing in the Axis Nifty ETF:

• Diversification and Reduced Risk: The ETF provides instant diversification by investing in a basket of 50 carefully selected stocks across various sectors. This diversification helps reduce the risk associated with investing in individual stocks. By investing in the ETF, you gain exposure to multiple industries, potentially lowering the impact of specific stock or sector downturns on your investment portfolio.
• Professional Management: The Axis Nifty ETF is managed by experienced fund managers who ensure that the fund's investments closely correspond to the Nifty 50 index. These professionals aim to replicate the index's performance, providing investors with returns that match the overall market. Their expertise helps eliminate human bias and replicates the index basket, investing at real-time prices.
• Long-Term Investment Potential: The Axis Nifty ETF is suitable for long-term investors. It protects investors from short-term market fluctuations and provides gains that can comfortably beat the inflation rate over time. While there may be ups and downs in the short term, investing for five years or more can lead to attractive returns, outperforming fixed-income options.
• Conservative Investment Strategy: The ETF primarily invests in large-cap stocks, which tend to be more stable than smaller companies during stock market corrections. This makes the fund a conservative choice for equity investors who want to balance their portfolios with less volatile options. The fund's holdings in large-cap stocks and debt instruments further reinforce its conservative nature.
• Accessibility and Liquidity: Exchange-Traded Funds, like the Axis Nifty ETF, trade on stock exchanges like common stocks. This feature provides investors with easy access to buying and selling the fund, offering liquidity and flexibility in managing their investments. ETFs also have lower expense ratios than regular mutual funds, leading to higher returns for investors.

The cons of investing in Axis Nifty ETF

While investing in the Axis Nifty ETF has its benefits, there are also several drawbacks and risks to consider. Here are some cons of investing in the Axis Nifty ETF:

• Market Risk: Like any investment in the stock market, investing in the Axis Nifty ETF is subject to market risks. The performance of the ETF depends on the overall performance of the stock market. If the Indian stock market performs poorly due to macroeconomic factors, the value of your investment in the Axis Nifty ETF will also decrease.
• Sector-specific Risk: The Axis Nifty ETF tracks the Nifty 50 index, which includes stocks from various sectors. However, investing in this ETF may still expose investors to sector-specific risks, especially if a significant portion of the index is allocated to a particular sector. For example, if the banking sector constitutes a large portion of the index and there are adverse developments within that sector, it can significantly impact the value of the ETF.
• Limited Growth Potential: While the Axis Nifty ETF provides exposure to a diverse range of sectors and companies, it may not capture the full growth potential of individual stocks. Some companies within the index may outperform others, leading to disparities in returns compared to investing directly in those specific stocks.
• Market Volatility: The Axis Nifty ETF is subject to market volatility, especially since different sectors can experience significant fluctuations in response to macroeconomic factors, geopolitical events, and regulatory interventions. Investors should be prepared for potential price swings, especially during periods of market uncertainty.
• Tracking Error: All mutual funds and ETFs have some level of tracking error, which is the difference between the performance of the fund and the index it tracks. While total market index funds typically have very low tracking errors, it is still a factor to consider when investing in the Axis Nifty ETF.
• Expense Ratio: The expense ratio is the annual fee that investors pay to own a mutual fund or ETF. While the Axis Nifty ETF has a relatively low expense ratio compared to regular funds, it is still an additional cost that impacts your overall returns.

It is important to carefully consider these cons and risks before investing in the Axis Nifty ETF. Understanding the potential drawbacks can help you make a more informed decision and manage your investment strategy accordingly.

How does Axis Nifty ETF compare to other funds?

The Axis Nifty ETF is an Exchange-Traded Fund that tracks the Nifty 50 index, which is made up of 50 large-cap companies across 12 sectors that contribute significantly to India's economic growth. This ETF aims to replicate the performance of the Nifty 50 index, providing returns that correspond to the index's total returns. It is designed to eliminate human bias, invest at real-time prices, and protect long-term investors from short-term inflows and outflows.

When compared to other funds, the Axis Nifty ETF offers a few key advantages. Firstly, it provides instant exposure to the markets, allowing investors to gain access to a diverse range of large-cap stocks through a single investment. Secondly, it has a relatively low expense ratio, which can lead to higher returns for investors. The expense ratio for the Axis Nifty ETF is 0.07%, which is lower than the category average of 0.47%. This means that investors will pay lower fees, resulting in higher potential profits.

In terms of risk, the Axis Nifty ETF is considered to have a "Very High" risk level according to SEBI's Riskometer. This is due to the nature of equity investments, which tend to be more volatile. However, compared to funds that invest in smaller companies, the Axis Nifty ETF may be a more conservative option. Funds investing in large companies tend to fall less when stock prices decline, making them more suitable for conservative equity investors.

The performance of the Axis Nifty ETF has been rated as "Average" among its peers, and its returns are currently better than the category average. The fund's portfolio is largely conservative, with investments primarily in Large Cap stocks and debt instruments. This conservative investment strategy may appeal to investors seeking a more stable option.

Overall, the Axis Nifty ETF compares favourably to other funds in terms of expense ratios, instant market exposure, and a conservative investment strategy. However, it is important to note that all investments carry risk, and investors should carefully consider their financial goals, risk tolerance, and time horizon before investing.

What are the tax implications of investing in Axis Nifty ETF?

When considering investing in the Axis Nifty ETF, it is important to understand the tax implications, as these may vary depending on factors such as the type of investment, the length of time the investment is held, and the date of sale. Here is an overview of the tax implications of investing in Axis Nifty ETF:

Income through Dividends:

The dividends earned from the stocks within the Axis Nifty ETF are taxable. Before the Financial Year 2021 (FY21), a Dividend Distribution Tax (DDT) of 15% was applied to all dividends paid to investors. However, from FY21 onwards, the DDT was abolished, and the income from dividends is now added to the investor's annual income. This means that dividends are taxed according to the investor's income tax slab rate. Some fund houses offer investors the option to either credit the dividends into their accounts or reinvest them in the ETF for higher returns upon sale.

Income through Capital Gains:

Capital gains refer to the profits made from the sale of the ETF. Capital gains can be categorised as either short-term or long-term, and the tax structure differs accordingly.

• Short-Term Capital Gains: If the Axis Nifty ETF or its constituent stocks are held for less than or equal to one year and then sold for a profit, the gains are considered short-term capital gains. As per Section 111A of the Income Tax Act, any sale of these assets before 23 July 2024 will be taxed at a rate of 15%. For sales on or after 23 July 2024, the tax rate increases to 20%.
• Long-Term Capital Gains: If the ETF or its constituent stocks are held for more than one year and then sold, the gains are considered long-term capital gains. According to Section 112A of the Income Tax Act, long-term capital gains exceeding Rs 1.25 lakh made on the sale of these assets before 23 July 2024 will be taxed at a rate of 10%. For sales on or after 23 July 2024, the tax rate increases to 12.5%.

It is important to note that the tax structure for capital gains may vary depending on the type of ETF. The information provided here pertains to equity ETFs, which primarily invest in equities or related investment instruments.

Additionally, it is worth mentioning that there are no tax implications as long as you continue to hold the mutual fund units of the Axis Nifty ETF. The tax is incurred only when the units are sold, and the tax rate depends on the duration of the investment and the date of sale.

What is the investment objective of Axis Nifty ETF?

The investment objective of the Axis Nifty ETF is to provide investors with a way to participate in India's growth story by tracking the Nifty 50 index. The Axis Nifty ETF is an Exchange-Traded Fund (ETF) that functions similarly to an index fund but trades like a common stock on a stock exchange. This means that it tracks a basket of stocks, specifically the Nifty 50 index, which is made up of 50 companies across 12 sectors that significantly contribute to the growth of the Indian economy.

By investing in the Axis Nifty ETF, investors can gain instant exposure to the markets and benefit from the elimination of human bias. The ETF invests in real-time prices and protects long-term investors from short-term inflows and outflows.

The Axis Mutual Fund, which offers the Axis Nifty ETF, was established as a Trust under the Indian Trusts Act, 1882, and is sponsored by Axis Bank Ltd. It is important to note that Axis Bank Ltd is not liable or responsible for any loss or shortfall resulting from the operation of the scheme, and mutual fund investments are subject to market risks.

Frequently asked questions