Navi Nifty 50 Index Fund – Beware of cheapest Index Fund!!

Navi Nifty 50 Index Fund is the cheapest Index Fund in India launching on 3rd July 2021 by Flipkart co-founder Sachin Bansal’s Navi Mutual Fund with the total expense ratio (TER) of 0.06% in its direct plans. Should you concentrate on the cost and invest?

Navi Nifty 50 Index Fund

When we choose the Index Funds, the first important criteria we look for is the cost of the Index Funds. I think by concentrating on this, Navi Mutual Fund launching the cheapest index fund in India with a total expense ratio (TER) of 0.06% in its direct plans.

Navi Nifty 50 Index Fund – Beware of cheapest Index Fund!!

In one way I am claiming that cost is the most important criteria while choosing the index funds (or for the matter of investing in all instruments which you choose to invest). In another way, I am cautioning you about this newly index fund which is offering at 0.06%. Both the reasons are true. But the caution is mainly because of how these mutual fund companies play with us.

Let us look back and see how few fund houses played the game of accumulating the AUM and then immediately increasing the expense ratio.

In the month of April, both UTI AMC and HDFC AMC increased the expense ratio. UTI hiked its expense ratio on its UTI Nifty Index Fund from 16 April. For direct plans, the increase was 8 basis points. It raised from 0.1% to 0.18%.

Same way, HDFC AMC, increased TER on two index funds from 15 April. The TER for HDFC Index Fund-NIFTY 50 was actually doubled from 0.1% to 0.2%, for the direct plan. For the regular plan, it was increased from 0.3% to 0.40%.

These funds are in my recommended list of mutual funds for 2021 (Top 10 Best SIP Mutual Funds to invest in India in 2021).

An interesting point to notice here is that there was no drop in AUM for these funds. But still, these AMCs increased the expense ratio without giving any valid reasons (they are not obliged to give also).

Because of this, those who are already investing in these funds felt as if they were cheated as they can’t move out in middle.

In fact, there are no strict regulations on giving reasons for the increase in expense ratio by AMCs. The game that they play with us simple – Initially lower the expense ratio to attract. Once they build the decent targetted AUM, then increase the expense ratio. Those who invested have no option but to continue.

Do remember that such an increase in expense ratio is usually within the limit which the regulator has prescribed. Hence, they have neither obligation to give us the reason nor we can question such moves.

Hence, rather than looking at the low cost of this newly launching Navi Nifty 50 Index Fund, better to wait for some more time. Because when you are choosing the index funds, three things matter to us – Cost, Tracking Error and AUM.

If you consider the cost, Navi Nifty 50 Index Fund may be the cheapest. However, we can’t guarantee that they offer us at such a low rate in the future also. Tracking Error is unknown to us as it is a new fund. AUM is a big question mark like how much they garner during this NFO period (or at a later stage).

Hence, rather than being a scapegoat to these mutual fund companies EXPENSE RATIO GAME, better to wait and watch and then take a cautious call. As of now, better to avoid this NFO.

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15 Responses

  1. Thanks Basavaraj Sir!

    Then I will stop SIP with navi as of now without redeeming it and wait until it becomes a stable one.
    Will start a fresh investment with UTI nifty index funds.

    Wishing you a very happy new Year.

  2. Hi Basu Sir,
    Thanks for the posts and it’s really helpful for me. Just wanted to get my query clarified with you.
    In terms of tracking error(as on 1st Jan, 2023), Navi nifty 50 is closing matchhing with top nifty funds like UTI and SBI, which is 0.04%. Moreover it’s one of the highly purchased fund during 2022 and hence AUM is gradually increasing as well. Slowly it will beat other funds in couple of years with respect to AUM.
    Navi Fund house motive/vision is to exclusivly concentrate on passive products with low cost and also they wanted to pass on most of the benifits to customer/end users.
    Its been a year I am investing in this fund and do you still suggest me to switch or continue here?
    Do you think AMC will be reliable for long term investment to say 20 years?

    Vikram Prabhu

    1. Dear Vikram,
      My concern is with the expense ratio but not with AUM and performance. As they are new, let us wait and watch.

  3. Hi Basu Sir,
    Thanks for the valuable article.
    Completely agree that cheap Expense ratios should not be the main criteria for choosing the Index funds.
    Wish I had read your article much earlier.
    Now since I am invested in Navi Nifty 50 Index fund from past 6 months, I wanted to know what are your recent views (December 2022) on this Navi Nifty Index fund?
    Because the expense ratio hasn’t increased and is still 0.06% since inception. Hence, I am planning to continue in this fund as part of my Equity portfolio (for long Term Goal of 10+ years).
    Eagerly waiting for your reply.

          1. Thank you for answering my queries Sir.
            For long term goals, should we avoid Nifty NEXT 50 index fund or should we invest in it?

  4. Dear Basu,

    Thanks for looking into my queries. I am following 100 % equity allocation as I am already late in starting my retirement plan. My current monthly expenses are 50k excluding all emi and children education fees . can you please advice retirement portfolio for next 13years . I can invest 80k per month for my retirement portfolio. Thanks

    1. Dear Ram,
      Never do such a mistake of taking high risk just because you are too late. Going beyond 50% to 60% in any asset is risky.

  5. Dear Basu,

    Thanks for your post. Can you please advice on my portfolio
    1) I have parked some amount in Savings account for Children’s education. I will start partial withdraw of 5lakhs each year starting from next 5 years. Is it better to keep this amount in FD ( the current interest rate 5.5%) or can you please suggest where I can park this amount.
    3) I have parked 2years of my expenses in savings account for emergency fund.
    2) Planning to start 80k in SIP for my retirement (current age 45) in the following funds for next 13 years. My current portfolio is 15 lakhs in various funds that I invested in staggered manner for last few years.
    HDFC Nifty 50 index fund direct growth – 50k
    UTI Nifty Next 50 Index fund direct growth – 16k
    Motilal Oswal S&P Direct growth -14k

    1. Dear Ram,
      1) Park the money in FD which is required within 3 years. More than three years requirement can be parked in Debt Funds.
      3) What asset allocation you are following with respect to debt and equity?

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