IDBI is coming out with a new mutual fund called the IDBI India Top 100 Equity Fund, and this fund will be a diversified equity fund which will invest in stocks selected from the CNX 100.
What will IDBI India Top 100 Equity Fund invest in?
The CNX 100 is an index that’s a combination of the Nifty and Nifty Junior so this diversified equity mutual fund will have pick and choose from the 100 biggest companies listed in India. The fund will invest not less than 70% of its assets in equity products, and the remaining in debt products.
So, the fund is geared towards big companies in India, and to that extent the universe of the fund is quite limited. This may be comforting to people who know that the fund won’t invest in smaller more volatile companies, and disappointing to people who think that the fund doesn’t have too many options for diversification and will probably feature the same names that most of the existing funds have today.
I think both point of views are fine as long as you know what you are getting into.
NFO Dates, Investing Options and Exit Loads
The NFO started on the 25th April 2012, and will end on May 9th 2012. You can invest a minimum of Rs. 5,000 in the NFO and there’s going to be a growth and dividend option that you can choose from.
You can set up a monthly SIP for Rs. 500 or more or quarterly one for Rs. 1,500 or more.
There is an exit load of 1% if you sell your fund before a year and this exit load is applicable in case of SIPs also as well as when you switch to another fund.
Expense of the fund
All mutual funds charge expenses to its investors which means that they take a certain sum out of the fund every year to meet expenses. The lower the expenses, the better it is and these expenses are expressed as a percentage called expense ratio.
The expense ratio listed for IDBI Top 100 in its document is 2.50% which is fairly high and I don’t see why someone should pay so much in expenses for a fund that has no track record and that will only invest from stocks that are chosen from Nifty and Nifty Junior.
While I can see how the composition of this fund might be drastically different from a Nifty Index Fund, the reality is that most active funds aren’t able to beat their indices and it’s hard to see why someone should pay a relatively high fee to find out whether this fund will be able to do that when they can invest in other funds that have a lower fee and a much longer track record.
Agree. Mutual Fund NFOs are best avoided when there are existing funds in the same category with a consistent performance record.A common myth among regular NFO investors is that since it is available at a NAV of Rs. 10, it is cheap.
Again I have found the analysis given balanced and concise….thus making it simpler for one to take a rational decision…excellent work
–s gopal