NFO review: Groww Nifty Total Market Index Fund

Groww Mutual Fund has announced the launch of a new open-end index fund known as the " Groww Nifty Total Market Index Fund ." This first-of-a-kind scheme is designed to replicate the performance of the Nifty Total Market Index, which encompasses 750 stocks across various market capitalisation segments.

The subscription period for the new fund offer (NFO) will end on October 17, 2023.

Fund strategy

This newly launched fund seeks to mirror the Nifty Total Market Index, which comprises the top 750 stocks across different market cap segments, reflecting the Nifty 500 and Nifty Microcap 250 Indices.

Note: The Nifty 500 index includes approximately 96 per cent of the free float market capitalisation, divided into large-cap (1-100 stocks based on market cap), mid-cap (101-250 stocks), and small-cap (250-500 stocks). The Nifty Microcap 250 index consists of the top 250 companies beyond the NSE 500, ranking from the 501st to the 750th-largest companies in the country. It's important to note that there is no official SEBI categorisation for the micro-cap segment.

The weightage of individual stocks in the index is determined by their free float market capitalisation (shares available for trading, excluding promoter holdings). The fund is designed to hold only 3.44 per cent of stocks, which is different from the Nifty 500 index. Both Nifty 500 and Nifty Total Market Index are market-cap-based indices, and their constituents may change during half-yearly reviews.

Portfolio diversification

The fund's portfolio will be diversified across key sectors such as Financial Services, Information Technology, Oil, Gas & Consumable Fuels, Fast Moving Consumer Goods, and Automobile and Auto Components, similar to the composition of Nifty 500.

Performance and trading volume

The difference in returns between the total market index and the Nifty 500 is not significant; their returns almost overlap.

Looking at calendar returns, the Nifty Total Market TRI has slightly outperformed the Nifty 500 TRI by a few basis points. Over a five-year rolling basis, the average difference is only 0.22 per cent.

Liquidity concerns for small and micro-cap investments

When considering small- and micro-caps, concerns about liquidity often arise. Our analysis reveals that their smallest weight allocation in the fund would be 0.0018 per cent. For instance, if the assets under management (AUM) grow to Rs 5,000 crore, allocating Rs 9 lakh (0.0018 per cent of Rs 5,000 crore) on a given day should not be a challenge. Based on the last six months' trading value, that stock is transacted worth Rs 8.86 crore on any given day, indicating ample headway.

Conclusion
The additional 250 stocks offered by the Nifty Total Market index have a weightage of little over 3 per cent. This is too little to make any meaningful difference over and above to what one would get by investing in the Nifty 500 index.

That being said, individuals seeking a fund that tracks a more extensive index may consider the Nifty 500, for which several schemes are already available in the market.

Also read: Three questions to ask before investing in NFOs