Passive investing is index-based investing where a scheme invests or tracks a particular index. An actively-managed scheme, on the other hand, does not try to replicate the index, but it focuses on stocks that would perform better. A passive investor can choose an index scheme or an Exchange Traded Fund.
There are 54 index schemes in the large cap mutual fund category.These schemes are benchmarked against Nifty50, S&P BSE Sensex, Nifty50 Equal weight Index, Nifty100 Low Volatility30 Index Fund, Nifty100, Nifty100 Equal Weight Index, Nifty Next50 Index, among others.
Mutual Fund experts ask investors to choose index funds based on their expense ratio and tracking error. The expense ratio is the total expenses charged by the scheme. It is a percentage. Tracking error tells you whether the scheme managed to replicate the benchmark index. A lower tracking error is better.
ETMutualFunds shortlisted the top 10 funds based on lower expense ratio and lower tracking error separately. We considered direct schemes and growth options.
Source:ACE MF, Data as on November 2022
Source:ACE MF, Data as on November 2022Based on the above exercise, only Navi Nifty 50 Index Fund had both a lower expense ratio and tracking error.
Three schemes from Navi Mutual Fund had lower expense ratio. Two schemes each from IDFC Mutual Fund, and Axis Mutual Fund had lower expense ratio. One scheme each from ICICI Prudential Mutual Fund, Motilal Oswal Mutual Fund, and Nippon India Mutual Fund also had a low expense ratio.
On the criteria for lower tracking error, two schemes each from Aditya Birla Sun Life Mutual Fund, HSBC Mutual Fund, and HDFC Mutual Fund had low tracking error. One scheme each from Navi Mutual Fund, Edelweiss Mutual Fund, Kotak Mutual Fund, and UTI Mutual Fund also had low tracking error.
Note, this is not a recommendation. This exercise is just to shortlist the large cap index funds that have low expense ratio and tracking error. You should always choose mutual funds based on your goals, investment horizon, and risk profile. If you are conservative equity investor who wants to growth wealth without taking too much risk and face volatility, you may choose large cap mutual fund schemes. You should invest in them with an investment horizon of five to seven years. Further, if you believe in active schemes, you may choose actively managed large cap schemes. If you subscribe to passive strategy, you may choose large cap index schemes or ETFs.
