Fund review - Reliance NIFTY Junior ETF
TLDR: ETF review, history, fund composition, return and why is it in my portfolio?
As discussed in my previous post, i am planning to a review of my portfolio as a start and use that as an excuse to reaffirm my investment philosophy and explain the reasons for my buying an ETF / fund.
By blogging it, I can revisit those original assumptions a few years down the line to see if they are still valid and secondly it keeps me honest.
My Indexing philosophy
Being inspired by John C Bogle and his book on investing (read my review here), I wanted a way to emulate S&P 500 equivalent for the Indian market.
ICICI Prudential BSE 500 ETF appears to be one with a low expense ratio (0.3%) which is available, but with an AUM of 4 crores, there is hardly any liquidity to use this option.
So instead, I decided to create my own by spreading the purchase in 3 ETFs.
Reliance NIFTY BeES - NSE top 50
Reliance NIFTY Junior BeES - NSE next 50
ICICI prudential Mid cap - BSE Mid cap select index
I will cover the Junior BeES in this review.
Reliance Junior BeES started its journey as Goldman & Sachs junior BeES benchmark ETF covering the Nifty next 50 index before it was taken over by reliance. The original fund was launched in Feb 2003, so we have a good 15 year history of this fund for comparison. This fund is suited for someone who has an investment horizon of greater than 7 years.
Let us talk some numbers as of Dec 2018
Fund AUM - 879 crores
Expense ratio - 0.23%
CAGR since launch (Feb 2003) - 21.06%
With a performance like that over the last 15 years of 21% compounding every year, this is one of the top performers in the large cap funds across the board including active / passive funds.
Yes, it does lag the index performance by 2% points because of tracking errors, expenses and dividend yield of the underlying stocks not passed on to investors. But the returns are hard to argue with.
As always, no ETF / mutual fund / stock achieves this return in a linear direction. This ETF also corrects and pretty much follows the market direction.
So what would be the return of 10,000 rupees invested in this fund every month yield if invested for the last few years.
10 Years - 1-Jan-2009 to 31-Dec-2018 - CAGR - 14.94%
Amount invested - 1,200,000.00
Value - 2,593,135.85
7 years - 1-Jan-2011 to 31-Dec-2018 - CAGR - 15.23 %
Amount invested - 840,000.00
Value - 1,428,836.31
5 years - 1-Jan-2013 to 31-Dec-2018 - CAGR - 12.2%
Amount invested - 600,000.00
Value - 807,421.68
Data from moneycontrol.com
Until recently there were hardly any funds or ETFs that were the equivalent of this index, but now we have a slew of alternatives available which can track the same index. If you are someone who doesn’t have a demat account but invests only in mutual funds then these are the other options that you can use for exposure to this index in alphabetical order (direct plans)
Aditya Birla Sun Life Nifty Next 50 ETF - AUM 105 crores - expense ratio - Not available
ICICI Prudential Nifty Next 50 Index Fund - AUM 356 Crores - expense ratio - 0.44%
SBI ETF Nifty Next 50 Fund - AUM 22 Crores - expense ratio - 0.2%
UTI Nifty Next 50 Index Fund - AUM 1058 Crores - expense ratio - 0.13%
Based on the long term performance of this ETF, I would rate this fund 8/10.
Why only 8/10 - simple reason expenses. Not just the expense ratio but also the cost of acquisition and disposal of ETF (buy and sell via trading account) which is close 1% each leg. So total cost is close to 2.2%.
When this fund was originally launched in 2003 there was hardly any competition to this fund, but now there are several alternatives which track the same Index at much lower costs.
What are your thoughts on this fund? Would you consider this index (not this ETF itself) in your portfolio?
Leave your comments below.