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This index is the real deal if you want market betaSirshendu Basu, Bandhan MF, Mumbai

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Bandhan MF has launched its Total Market Index Fund – the 2ndsuch launch in the industry, and the first by one of the Top 20 players.

This index includes the Microcap250 index which the Nifty500does not, and hence this 750 stock index is a better representation of the Indian market, says Sirshendu.

While Nifty500 covers 92% of market cap and Total Market Index covers 95% at present, there are two points to note on why TMI perhaps makes better sense as the primary beta fund in an investor’s portfolio:

1.     With microcaps consistently outperforming other cap segments, their 3% weight has added over 1% to return in Total Market Index vs Nifty500

2.     As our market grows, expect microcaps to grow beyond 3% and for Nifty500 coverage to slip below 90% - which means TMI will become increasingly the actual broad market representative.

Is illiquidity in smaller stocks likely to open up a large tracking error? Will it cause the fund to fail stress tests? Sirshendu says 99%of the portfolio can be redeemed in 5 days and 97% in 3 days. Expect tracking error to be between 20-30 bps vs single digits for a Nifty 50 index fund.

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Comments Posted
Mohsin Bijepuri ARN NO :33913 Chennai , 02 Jul 2024

Microcaps have been outperforming many stocks in the market. Total Market Index tracking 750 stocks will capture micro caps too whereas S&P 500 doesn’t. Is liquidity a concern with Microcaps? Stress test conducted & only 1% of the index may suffer liquidity concern is the finding.

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