Axis Nifty 100 Index Fund Impressive AUM but is it expensive?

Axis Nifty 100 Index Fund has a Total Expense Ratio of 0.16% for the direct plan with 436 Crores in AUM. Is this too expensive? Is it worth shifting from a Nifty 50 index fund to Axis Nifty 100? Let us find out

Axis Nifty 100 Index Fund Is it too expensive

Published: December 10, 2019 at 10:00 am

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Axis Nifty 100 Index Fund is an open-ended index fund tracking the NIFTY 100 Index. Launched in Oct 2019 it has a Total Expense Ratio (TER) of 0.16% for the direct plan and an impressive 436 crores of AUM. Is this however too expensive? Is it worth shifting from a Nifty 50 index fund to Axis Nifty 100? Let us find out.

The TER of the regular plan is an astoundingly high 1.01%. GIven the banking ties, the AMC has, much of 436 crores AUM is likely to be from the regular plan. A 1% fee for an index fund is nothing short of tragic given how much the regulator and industry like to talk about “mutual fund awareness”.

Conveniently the AMFI has stopped updating regular and direct plan AUM breakup each month. We will have to wait until Jan 2020 to know the quarterly average AUM. For a direct plan investor, it does not matter where the AUM comes from though as long as it is a healthy number. Otherwise, there might be a situation such as this: These five index funds beat their indices! Why you should avoid them!

During this NFO period, this author had reviewed the fund –Axis Nifty 100 Index Fund Review: Replacement for active large cap funds? – but suggested waiting at least six months for the fund to get established and some history to calculate the tracking error with.

Now that we have two pieces of the puzzle: a good AUM and a reasonable expense ratio (see below for comparison), it would be reasonable to guess that the tracking error would not be too high (although it could be). The questions for an investor now are:

  1. Can I switch from active large caps to this fund?
  2. Can I switch from NIfty 50 index funds to Axis Nifty 100?
  3. Can I use Axis Nifty 100 instead of a Nifty 50 and Nifty Next 50 combination?

Let us answer this question by busting a myth. NIfty 100 is not equal to Nifty 50 + Nifty Next 50.

As of Nov 30th 2019, SBI Life has the highest weight in Nifty Next 50. (Source factsheet). However, in NIfty 100, SBI Life only has a weight of 0.62%! This means all other stocks of Nifty Next 50 will have a proportionally lower weight in NIfty 100. The latest stocks weights can be obtained from this NSE monthly report page.

Meaning, NIfty 100 = 85% Nifty 50 + 15% Nifty Next 50  (approximately). As of Nov 2019, the Nifty 100 has 86.52% of NIfty 50 stocks. It is important for investors to understand that they are not buying 100 stocks in equal measure. The same argument also applies to Motilal Oswal Nifty 500 Fund (Avoid & stick to Nifty 50 Index funds) which, by the way, has a TER of 0.38% (direct plan) – atrociously expensive (given the options, see list below) for getting Nifty-like returns!

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List of index funds (excluding ETFs) with expense ratio arranged in ascending order

A Sensex or Nifty index fund with 0.1% TER and at least (say) 300 Crores AUM can make a shortlist. Then a comparison of the last few years returns with the benchmark (dividends included) can indicate the extent of tracking error.

In comparison to other funds, a TER of 0.16% for managing 100 stocks is indeed quite reasonable. While Axis Nifty 100 Fund is no doubt a decent pick, the real question investors should ask is,  is it worth paying 60% more in fees for an extra 50 stocks that make up about 15% of the portfolio?. In other words, does it make sense to choose Axis Nifty 100 Index fund instead of a Nifty 50 index fund?

Fund Expense Ratio(%) AUM
Tata Index Fund-Nifty Plan 0.05 18.63
HDFC Index Fund-NIFTY 50 Plan 0.10 1032.52
HDFC Index Fund-Sensex 0.10 544.47
ICICI Pru Nifty Index Fund 0.10 514.91
ICICI Pru Sensex Index Fund 0.10 42.33
Nippon India Index Fund – Nifty Plan 0.10 39.04
Nippon India Index Fund – Sensex Plan 0.10 156.45
UTI Nifty Index Fund(D) 0.10 1793.60
Tata Index Fund-Sensex Plan 0.11 12.48
IDFC Nifty Fund 0.15 190.83
Axis Nifty 100 Index Fund-Direct 0.16 436.43
DSP NIFTY 50 Index Fund 0.20 24.29
UTI Nifty Next 50 Index Fund 0.27 569.11
DSP NIFTY Next 50 Index Fund 0.29 44.70
SBI Nifty Index Fund 0.29 521.79
IDBI Nifty Index Fund 0.30 229.45
Aditya Birla SL Index Fund 0.33 144.76
DSP Equal Nifty 50 Fund 0.38 110.87
Motilal Oswal Nifty 500 Fund 0.38 22.14
Motilal Oswal Nifty Bank Index Fund 0.38 19.27
Motilal Oswal Nifty Midcap 150 Index Fund 0.38 23.98
Motilal Oswal Nifty Smallcap 250 Index Fund 0.38 16.02
ICICI Pru Nifty Next 50 Index Fund 0.39 683.27
Sundaram Smart NIFTY 100 Eq Weight Fund 0.46 21.84
LIC MF Index Fund-Nifty Plan 0.47 29.28
IDBI Nifty Junior Index Fund 0.49 54.31
Franklin India Index Fund-NSE Nifty 0.53 289.31
LIC MF Index Fund-Sensex Plan 0.58 21.30
Principal Nifty 100 Equal Weight Fund 0.74 18.08
Taurus Nifty Index Fund 0.74 1.34

Nifty 50 TRI  vs Nifty 100 TRI Performance Comparison

Let us consider every possible 5,7 and 10-year returns of NIfty 50 and Nifty 100 and the excess return of Nifty 100 over Nifty 50 (that is Nifty 100 return minus Nifty 50 return). Please ignore the horizontal white line (see comment below)

Five Years

Nifty 50 vs Nifty 100 Rolling Returns over Five Years
Nifty 50 vs Nifty 100 Rolling Returns over Five Years
Excess returns of Nifty 100 over Nifty 50 over five years
Excess returns of Nifty 100 over Nifty 50 over five years

Seven Years

Nifty 50 vs Nifty 100 Rolling Returns over Seven Years
Nifty 50 vs Nifty 100 Rolling Returns over Seven Years

Ten Years

Nifty 50 vs Nifty 100 Rolling Returns over Ten Years
Nifty 50 vs Nifty 100 Rolling Returns over Ten Years
Excess returns of Nifty 100 over Nifty 50 over ten years
Excess returns of Nifty 100 over Nifty 50 over ten years

Nifty 100 does not always beat Nifty 50 and even when it does, the excess return would be on either side of 1%. Take away 0.06% which is the TER difference, then the excess return could be (with luck) about 0.5%-0.6%. Thanks to Saurabh Mittal  for pointing out a mistake (see comment below)

If this seems important in the long run (not a. guarantee unlike expenses), then you can consider Axis Nifty 100 Index fund. If this seems like taking a chance, stick to an established Nifty 50 index fund.

If you using a combination of Nifty 50 and Nifty Next 50 index funds with the latter 20% or more, then switching to a Nifty 100 index fund will change the risk-reward balance.

In summary, while the TER of Axis Nifty 100 Index fund is reasonably low and inviting enough, in comparison to an established Nifty or Sensex index fund, the gain for the extra fee may not always be justifiable. So relative to these it is a bit expensive.

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3 Comments

  1. Hello, Thank you for the insightful writings. I just want to make sure if I am understanding is correct. The expenses of Axis 100 is 60% higher but the difference in return will be only 0.06% and not 0.6%. For example.
    Fund A . Axis 100
    Expenses0.10% 0.16%
    Pre expense return15% . 16%
    Post Expense return 14.9% . 15.84%

    So the return difference line should be set at 0.06 and not at 0.6. Please confirm.

  2. “If you using a combination of Nifty 50 and Nifty Next 50 index funds with the latter 20% or more, then switching to a Nifty 100 index fund will change the risk-reward balance.”

    It took me a re-read of your post on combining N50-NN50 to really understand the depth of this statement.

    In that post, a Nifty Blend of 90-10 was sufficient to replicate the risk-reward of Nifty 100 over 10 & 15Y. If you take the expenses into account (both UTI index funds) then a 90-10 blend would cost as follows:
    90% x 0.1 + 10% x 0.27 = 0.09 + 0.027 = 0.117% (~36.75% cheaper than Axis, similar risk-reward and with the added flexibility to adjust to market conditions).
    A 80-20 Blend would have a 0.134% ER (~19.4% cheaper, but a bit more risky).

    A 0.16% ER of Axis can be matched with a 65-35 Blend (65% x 0.1 + 35% x 0.27 = 0.1595%) that can potentially even outperform Nifty 100 EW with a bit more risk. So, really there’s little incentive in considering Axis over a blend.

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