Groww Nifty Total Market Index Fund is an open-ended scheme replicating/ tracking the Nifty Total Market Index (TRI). In this article, we compare the rolling returns of the underlying index with Nifty 50 TRI.
The Nifty Total Market Index tracks the performance of 750 stocks covering large, mid, small and microcap segments. Nifty 500 index and Nifty Microcap 250 index form part of the Nifty Total Market index.
The launch date is October 13, 2021, and the base backtested date is from 1st April 2005. The stock’s weight is based on its free-float market capitalization. This is the key reason to avoid this NFO.
These are the top 10 stocks in the Nifty Total Market Index as on Sep. 29th 2023 with weights in percentage. Source Index Factsheet. The numbers within brackets denote the weight in Nifty 50.
- HDFC Bank Ltd. 8.13 (13.30)
- Reliance Industries Ltd. 5.63 (9.21)
- ICICI Bank Ltd. 4.73 (7.74)
- Infosys Ltd. 3.64 (5.95)
- ITC Ltd. 2.79 (4.57)
- Larsen & Toubro Ltd. 2.59 (4.24)
- Tata Consultancy Services Ltd. 2.57 (4.20)
- Axis Bank Ltd. 2.04 (3.34)
- Kotak Mahindra Bank Ltd. 1.81 (2.96)
- Bharti Airtel Ltd. 1.66 (2.71)
This is typically how the market cap of NSE stocks is distributed. The higher the market cap, the higher the weight in the index. Beyond the top 50 stocks, the rest have minuscule market capitalization and, therefore, minuscule impact on the index portfolio.
The total market index looks like a diluted Nifty 50 index. Also: Do index fund returns depend upon just a few stocks (Concentration risk)?
According to the AMC, as of 6th Sep 2023, the total market index has 72% large cap, 16% Mid cap, 8.6% Small cap, and 3.4% micro cap. We just saw – Nifty vs Nifty Next 50 vs Nifty Midcap 150 vs Nifty Smallcap 250 – that the 250 small cap index always underperforms the mid cap index. We don’t expect the microcap to do any better. So that makes 500 stocks of excess baggage.
So those who insist on looking beyond the Nifty 100 can settle for a Largemidcap index fund with 250 stocks (we don’t recommend this either, but as options go, there it is).
To appreciate these ideas, here are 2262 10-year rolling return data points of the Nifty Total Market Index and Nifty 50.
For most of its history, the total market return has barely outperformed the Nifty 50. The expense ratio and tracking errors will wash away such tiny margins. The extra outperformance seen in recent months is unlikely to last.
In summary, there is no meaningful reason to buy Groww Nifty Total Market Index Fund when the underlying index represents a diluted large cap fund, and most stocks are excess baggage. We recommend sticking to Nifty or Sensex index funds.
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