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Former Flipkart co-founder Sachin Bansal’s Navi Mutual Fund has filed for an index fund that will track the Nifty Total Market Index. The index was created on 13 October by the National Stock Exchange (NSE). 

India already has index funds covering benchmark indices like the Nifty and Sensex as well as broader indices like the Nifty 500. In 2019, Motilal Oswal Mutual Fund launched an index fund based on the Nifty 500. However the Total Market Index goes one step further and covers ‘micro-cap’ stocks as well with 750 stocks under its ambit.

According to the NSE factsheet for the index, the Nifty Total Market Index will track the performance of 750 stocks covering large, mid, small and microcap segments. All stocks that are part of Nifty 500 index and Nifty Microcap 250 index form part of the Nifty Total Market index. The weight of the stocks in the index is based on their free-float market capitalization. 

NSE factsheets further show that the Nifty Total Market Index is highly correlated with the Nifty 50 with a correlation of 0.98. Readers should note that a correlation of 1 means movement of two variables that is in lock-step. The Nifty Total Market Index has 1-year and 5-year returns of 63.82% and 16.63% (CAGR) respectively. This is very close to the Nifty 50 returns of 58.54% and 16.82% respectively. This is because a market cap-based weightage provides an extremely high weightage to large companies in the index. However, the Total Market Index has slightly lower valuations than the Nifty 50.

"Around 70-80% of the weightage of the index funds would be Nifty 50 stocks. Investors who want small and midcap exposure are better off buying index funds tracking those indices rather than a total market index fund. Small company stocks are also illiquid and the fund manager may have to hold a high cash level to meet redemptions. This will impose a hidden 'illiquidity' premium on investors," said Anubhav Srivastava, Fund Manager and ETF Specialist, Infinity Alternatives.

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