Friday 4 June 2010

Taurus Nifty Index Fund NFO: Review Analysis & Details

Another mutual fund house has decided to come out with its NFO or New Fund Offer. The Taurus Mutual Fund House has launched its NFO or New Fund Offer called the Taurus Nifty Index Fund NFO Taurus Nifty Index Fund
In this article, we will analyse how good is this Taurus Nifty Index Fund NFO, whether this Taurus Nifty Index Fund offers anything new or unique for the investors and whether the investors should invest in Taurus Nifty Index Fund .

Taurus Nifty Index Fund NFO: Review Analysis & Details

Let's begin with some basic details about Taurus Nifty Index Fund.

What are the NFO dates for Taurus Nifty Index Fund ?
The NFO period for Taurus Nifty Index Fund is relatively short - from June 4th 2010 and will close on 10th June 2010. After that, regular buying and purchasing will commence through the end of the day NAV system from July 9th Onwards.

What is so unique about this Taurus Nifty Index Fund?
The good thing about the Taurus Nifty Index Fund is that it is a tracking index fund i.e. it will attempt to replicate the performance of the S&P CNX Nifty Index, which constitues the top 50 stocks of the NSE as per the market capitalization. Index fund investments is something which we always recommend, as the investors dont have to worry about stock selection.
So the Taurus Nifty Index Fund will be a good fit for investors who believe in the Index story and are looking for long term gains from the overall market performance rather than the stock specific exposure. The index funds automatically offers a good diversified mix of selected stocks.

The investment strategy as reported by the official website is that this Taurus Nifty Index Fund will follow the "passive investment" strategy and instead of getting into stock selection by the fund manager, it will simply go by attempting to replicate the S&P CNX Nifty Index performance. It will be achieved by buying the stocks on the Nifty 50 index in the same proportion or weightage as in the Nifty 50 index. However, it is not mentioned how frequently will the Taurus Nifty Index Fund stock be rebalanced. This does affect the returns of index funds. Say a Index fund manager decides to rebalance his portfolio every week, he might end up paying big charges on this frequent buying and selling. The advantage is that the index in tracked better. On the other hand, if some index fund manager decides to rebalance his portfolio once a month, then he may save big on brokerage and commission, but might loose track on the underlying index. Say if XYZ stock is replaced by ABC stock in the index on 2nd of the month and the fund manager waits to rebalance it on the 30th, then he might end up selling XYZ at low price and buying ABC at high price, as XYZ will loose on the news of being kicked out of index and ABC will gain on news of inclusion in the index.
Hence, it again boils down to the trading activites of the fund manager.

Same problem relates to Tracking Error - the percentage by which the Taurus Nifty Index Fund (Index Fund) lags (or rides ahead) the underlying index.

Also note that Taurus Nifty Index Fund will invest 95% to 100% in the securities, they will keep 0% to 5% in debt and money market instruments so to have cash ready for redemtion. This automatically shows that there will be tracking error and the underlying index might not be replicated properly.

Are there any alternatives to Taurus Nifty Index Fund?
Yes. For any index funds, we recommend going for equivalent ETF or Exchange Traded Funds on the same underlying index. They come with the benefit of exact tick by tick price movements, rather than end of the day NAV. That allows traders to benefit from intra-day price movements and make good money. Although they incur brokerage charges which vary from broker to broker. (See trading example of an ETF)

The Taurus Nifty Index Fund will be benchmarked to S&P CNX 50 Index Mr. Sadanand Shetty will be the Fund manager for Taurus Nifty Index Fund.

Minimum Investment:
Purchases : Rs. 5000/- and in multiple of Rs. 1000 thereafter.
Its not clear whether SIP or Systematic Investment Plan is also available.

Investment Options for Taurus Nifty Index Fund :
- Growth
- Dividend (Payout and Reinvestment)

No Tax Benefit is available in the Taurus Nifty Index Fund

The entry load for Taurus Nifty Index Fund is as follows:
Entry Load for Taurus Nifty Index Fund :
Zero Entry Load

Exit Load for Taurus Nifty Index Fund:
Exit within 15 days from the date of allotment - 1 %;
Exit after 15 days from the date of allotment - Nil

Final Thoughts about the Taurus Nifty Index Fund?
By investing in this fund, one is betting on the skills of the fund manager on how well he can keep the tracking error to the minimum. Since the fund manager is managing an index fund following a passive investment strategy, the frequency at which he rebalances his portfolio becomes important.
Overall, this Taurus Nifty Index Fund is just another new fund offer for a index fund, without anything unique that sets it apart

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