Should you invest in Navi US Total Stock Market Fund of Fund?
Navi Mutual Fund launched its first overseas fund - Navi US Total Stock Market Fund of Fund (FoF) that invests in Vanguard Total Stock Market ETF, which further invests in CRSP US Total Market Index; Vanguard group is one of the largest providers of mutual funds and exchange traded funds (ETFs) in the world
Navi Mutual Fund launched its first overseas fund - Navi US Total Stock Market Fund of Fund (FoF) that invests in Vanguard Total Stock Market ETF, which further invests in CRSP US Total Market Index; Vanguard group is one of the largest providers of mutual funds and exchange traded funds (ETFs) in the world. Mutual Funds feeding into actively managed foreign funds have currently stopped flows on account of hitting a Sebi cap of 7 billion dollars on such investments. However Navi US Total Stock Market Fund of Fund (FoF) invests in an ETF and hence covered by a separate limit of USD 1 billion which has not been hit so far.
The unique feature of Navi’s FoF is that the Total Market Index index captures the performance of 4100+ publicly traded companies in USA, comprising nearly 100% of the US listed equity market.
The expense ratio for the fund has been fixed at low 0.06% per annum. The FoF is open for subscription until February 18, 2022. It is an open-ended fund, thus investors can invest even after the NFO period.
Fund exposure
The underlying index - Total Market Index is diversified and spread across large (72%), mid (20%), small-cap (6%) and micro (2%) companies.
Though the index covers across market-cap, the allocation to the most popular names such as Apple, Microsoft, Alphabet, Amazon, Facebook and Tesla.
The top 25 constituents make up for 34.34% weight of the index. The top sectoral exposure includes industries such as information technology, healthcare, consumer discretionary, financials and communication services.
The Vanguard Total Stock Market ETF – has been in existence for more than two decades and delivered returns close to its benchmark. The 1-year, 3-year, 5-year, 10-year returns from the fund have been 25.72%, 25.76%, 17.98% and 16.29% respectively in dollar terms.
The returns in INR terms will be higher (see table) because of the rupee depreciation impact.
Note that investments in international mutual funds are taxed like domestic debt funds. This means taxation at slab rate for gains realised within 3 years of purchase and 20% with indexation for longer time periods.
How different from S&P 500 Index?
Most of the existing US focused passive funds might give exposure to the indices such as Nasdaq index, which is heavily weighted towards companies in the information technology sector, and S&P 500 index. Here, we focus on S&P 500 index, a broad-based index similar to what is being offered by Total Market Index.
The S&P 500 index covers leading companies from leading industries and represents a broad cross-section of the US equity market. Thus, it comprises only large-cap stocks. Vanguard Total Stock Market gives exposure to large, mid and small-cap stocks. S&P500 represents approximately 82% of the VTI ETF, as per the fund house.Because of allocations in small and mid-cap stocks, the Total Market Index slightly more volatile than S&P500. But the long-term returns of both the funds have been similar.
Should you invest?
The positives of international investing such as diversification benefit and depreciation of rupee benefit continues with this fund as well.
With respect to the fund specifically, experts believe that those already having exposure to the US market don’t have to worry about missing investments in this fund as there is an overlap. Having said that, they suggest that the new investments into the US market can be part of this fund because of its wider coverage.
Prableen Bajpai, Founder, FinFix Research And Analytics said, “Navi US Total Stock Market Fund of Fund is a scheme for building an investors core portfolio outside India. However, individuals already investing in the developed markets such as U.S. via other passive funds or active strategies can skip the fund since it will result in duplication of selected stocks.”
Tarun Birani, Board Member, Association of Registered Investment Advisors points to the low cost of the fund and association with Vanguard as positives. He added, “Being backed by Vanguard which has a long track record is positive. Their funds give higher access to liquidity. Also, the size of their funds is big, the cost will be lower.”
On comparing with S&P 500 index, Birani said “while S&P 500 continues to be a very good index where one can invest. The Total Stock Market index too gives a meaningful exposure to the investor with mid and small cap exposure as well.”
In the light of restriction on fresh investments into some of the overseas funds, Santosh Joseph, Founder and managing partner of Germinate Investor Services LLP said, “for those looking to add US exposure, this is a superior alternative because of the coverage, which is wider.”
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First Published:5 Feb 2022, 06:24 AM IST
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