Many passive investing fans are excited by the 60% reduction in the fee (total expense ratio or TER) of Motilal Oswal Nifty 500 Index Fund. Does investing in the fund now instead of a Nifty 50 or Sensex index fund make sense?
On 25th April 2024, Motilal Oswal AMC announced (pdf file) that from 1st May 2024, the regular plan TER of Motilal Oswal Nifty 500 Index Fund will reduce from 1% to 0.81% and the direct plan TER will reduce from 0.33% to 0.13% – a reduction of about 60%.
Taking these changes into account, this is the historical TER.
The reduction in TER is possibly an invitation to invest in the fund. So should you?
Yes, you certainly can, but do it for the right reasons.
- Don’t invest just because the TER is low! Nothing lasts forever! Also, see: The Expense ratio of my index fund has doubled! Should I switch to ETFs?
- The tracking of Motilal Oswal Nifty 500 Index Fund over the last 1,2,3 years is about 0.05%, which is quite respectable. However, before investing, don’t look at tracking errors (for any passive fund). Tracking errors are for fund managers.
- Look at the tracking difference = fund return minus index return (dividends included). See the data below.
- Don’t buy a Nifty 500 fund only because it has more stocks (more market coverage) than the NIfty 50 or Sensex.
Because the stock weights are governed by free-float market capitalization, the top few stocks dominate the index, whether there are 50 stocks or 500 stocks. So, over the long term, the “benefits of larger market coverage” are, at best, minimal, as we can see below from the 10-year rolling returns comparison of the Nifty 500 TRI and Nifty 50 TRI. The benefits, if any, could be reduced due to tracking differences (fees, corporate actions, impact costs, etc.).
Does your portfolio need a Nifty 500 index fund? No, it does not. A Nifty 50 or Sensex index fund is a simpler choice.
Using the freefincal index mutual fund screener published each month, we can compare the tracking difference of Motilal Oswal Nifty 500 Index Fund with 18 Nifty index funds.
- Over the 1Y (as of April 2024), 13 Nifty index funds did better.
- Over the last 2Y, 17 Nifty index funds did better.
- Over the last 3Y, 13 Nifty index funds did better.
- Over the last 4Y, 12 Nifty index funds did better.
It is easier to manage 50 stocks than 500 stocks. Will the reduction in TER improve the performance of Motilal Oswal Nifty 500 Index Fund? It may or may not. It depends on market conditions, the ability of the fund manager to track the index, the impact costs of the stocks, etc.
As pointed out earlier, the TER does not impact the tracking error (assuming the TER is constant throughout observation). It will reduce the tracking difference, but other factors, as above, could increase the difference. So, one cannot predict anything now.
In any case, sticking to Nifty or Sensex index funds is simpler.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Podcast: Let’s Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
🔥Now Watch Let’s Get Rich With Pattu தமிழில் (in Tamil)! 🔥
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)
