Last Updated on August 22, 2022 at 11:30 pm
There is no need for investors to consider the two new index from DSP: DSP Nifty 50 Index Fund & DSP Nifty Next 50 Index Fund as there are good existing options. Amusingly, in its promotional campaign DSP has admitted that beating the market will be tougher in future! We should avoid a new index fund even with a low expense ratio unless its AUM is large enough. Alternatives are discussed.
DSP Nifty 50 Index Fund will track the top 50 stocks in the NSE by free float market capitalization. This will be a true large cap index. DSP Nifty Next 50 Index Fund will track the next 50 stocks in terms of market cap. Although the top 100 stocks are “defined” to be large cap stocks, we have clearly shown and many investors would have had first-hand experience that the Nifty Next 50 is not a large cap index. Its risk and reward profile is more like a mid cap index and investors need to be cautious of this.
In its NFO campaign DSP has admitted that index funds are relevant today for two reasons:
Introduction of SEBI re categorization which has confined the universe for active large cap fund managers
Introduction of TRI indices
The promotional pamphlet also points out to the over 4% reduction in average alpha from 2000-2009 to 2010-2018 when three-year and five year rolling return periods are considered. This kind of promotion is like shooting themselves on the foot since their main source of income (assuming they are profitable) is from active funds. So their slogan for this NFO launch is meet the market first then try to beat it!!
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
DSP must be pinning its hope on distribution “partners” to push the regular plans of these index funds (like UTI did when it launched Nifty Next 50). You can check this out when AMFI releases average AUM data next quarter. Also see: Which are the most popular direct plan mutual funds?
Why avoid DSP Nifty 50 Index Fund & DSP Nifty Next 50 Index Fund?
Readers may recall that we had recently shown five NSE and Sensex index funds that beat their indices and cautioned investors to avoid them. Amusingly, some of these funds had high expense ratios and still beat the index as they could not efficiently track the index portfolios. The main result is reproduced below for convenience.
Notice that these “outperformers” all have low AUMs making it difficult for the fund manager to manage inflows and outflow and still retain similarity with the index.
This is the main reason to avoid DSP Nifty 50 Index Fund & DSP Nifty Next 50 Index Fund or all NFO index funds. Let them first list and accumulate at least 500+ crores of AUM. Then we look at the returns over a year at least, check that with the index and then consider. Tracking errors or low expense ratio does not mean much. Actual point-to-point performance of the fund vs its index matters.
Which Nifty 50 index fund to choose?
First of all, avoid all ETFs. As mentioned before – Interested in ETFs? Here is how you can select ETFs by checking how easy it is buy/sell them – they suffer from NAV-price differences and not worth the trouble.
The choice is simple. UTI Nifty 50 Index fund. It has an AUM of 1000+ Crores, an expense ratio of 0.1% (Direct plan) and over nearly 6 years managed to keep the difference in return wrt Nifty 50 reasonably low. Source: Value Research.
| 1-Year | 3-Year | 5-Year | 10-Year | |
| Fund | 2.12 | 3.59 | 16.77 | 13.48 |
| NIFTY 50 Total Return | 2.17 | 3.87 | 17.18 | 13.87 |
Which Nifty Next 50 index fund to choose?
We have already discussed this in detail see:
- ICICI Nifty Next 50 Index Fund vs Reliance ETF Junior BeEs
- What is the best way to invest in Nifty Next 50 Index?
Current there is only about 0.05% difference in expense ratio between the direct plans of ICICI and UTI Nifty Next 50 funds. The difference in AUM (~ 70+ Crores is also fast narrowing. So investors can choose either.
To summarize, I recommend that investors avoid DSP Nifty 50 Index Fund & DSP Nifty Next 50 Index Fund or any other index NFO and consider existing options. It is unknown how successful DSP’s campaign would be and the NFOs could list with just 20-30 Crores of AUM making the fund susceptible to huge tracking errors.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)