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NAVI US Total Stock Market FoF NFO

  • Sidharth Sanjeev
  • Feb 08 2022
  • 8 minutes
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Navi Mutual Fund recently announced the launch of a new fund of fund named NAVI US Total Stock Market FoF. This open-ended scheme will invest in the Vanguard Total Stock Market ETF (VTI). This ETF in turn tracks the CRSP US Total Market Index performance, which constitutes more than 4000 small, mid and large cap companies that represent almost the entire US investable equity market. The NFO is open for subscription from 4th February 2022 and closes on 18th February 2022. The scheme will be managed by fund manager Pranav Vasa.

Watch this video to learn more about NAVI US Total NFO:

Investment objective of the fund

NAVI US Total Stock Market FoF’s investment objective is to provide long-term capital appreciation through investment focus in units of the Vanguard Total Stock Market ETF (VTI) or the Schwab Total Stock Market Index Fund (SWTSX). This passively managed scheme is one of the largest of its kind in the US-based ETFs segment. While the fund will focus its investment in US equities of all sizes, it will have a considerable investment allocation in big-ticket companies, including Microsoft, Amazon, Apple, Alphabet, Facebook and Tesla.

Why should you apply for the NFO?

Diversification: By investing in this FoF, investors can gain access to performance of more than 4,000 stocks that cover almost the entire US stock market. Historical CAGR (in rupee terms)  has been 28.15%, 20.11% & 20.27% in a span of 1, 5 & 10 years, respectively.

International exposure: Through this investment, investors can ensure a low-cost and easy way to gain exposure to the US stock market. A low correlation with Indian equities combined with the appreciation of USD results in the expectation that INR performance will increase. In the past 10 years alone, the USD has appreciated 1.53 times.

Low-cost investment: The FoF will have a total expense ratio of only 0.06% p.a., which is one of the lowest in the category. This will allow investors to enjoy larger profits. Since the fund will adopt a passive approach of investing in the ETF, it will likely incur lower costs related to portfolio reshuffling. It would be good to keep a note on the expense ratio even after the fund is launched and is operational.

Benefits of VTI exposure:  This FoF will presently be the only fund in India providing investors an opportunity to access Vanguard, which is at the forefront of low-cost passive fund management schemes. VTI is known to be the 3rd largest ETF in the world with $1.3 trillion worth of assets, estimated to be 10% of all assets that come under US stock mutual funds & ETFs.

Comparative historical performance of Vanguard Total Stock Market ETF

In the table below, investors can go through the historical performances of Vanguard Total Stock Market ETF and CRSP US Total Market Index:

 Vanguard Total Stock Market ETFCRSP US Total Market Index performance
1-Year13.52%25.72%
3-Year19.36%25.79%
5-Year15.64%18.00%
10-Year14.56%16.29%

Source: https://www.morningstar.com/etfs/arcx/vti/performance, https://institutional.vanguard.com/VGApp/iip/institutional/csa/investments/benchmarks/crsp/performance

Fund details 

Scheme nameNFO details for NAVI US Total Market FoF
Type of SchemeAn open-ended fund of fund scheme that will mainly invest in Vanguard Total Stock Market ETF
Category of the schemeFund of fund
BenchmarkCRSP US Total Market Index
Plan optionsRegular Plan Direct Plan 
Each of these plans offer the growth option
Fund ManagerPranav Vasa
Exit LoadNIL
Minimum InvestmentRs. 500 and multiples of Re. 1 thereafter.Additional minimum purchase of Rs. 100 and multiples of Re. 1 thereafter.
Expense Ratio0.06% p.a.
NFO Period04 Feb 2022 – 18 Feb 2022

Where can you invest in the NFO?

Head over to the Finity App to invest in this NFO. 

FAQs

1. What is NFO?

 NFO (New Fund Offer) is launched by the Asset Management Companies (AMCs) to generate funds for launching a new mutual fund. These funds are then pooled to buy the shares or other securities as per the fund’s mandate or the guidelines based on which the fund is launched. NFOs are like IPOs where all the relevant details of the funds are provided at the time of their launch and the units of the fund are usually set at Rs. 10 per unit for a subscription. SEBI guidelines allow the NFOs to be active for a maximum period of 30 days following which the units of the fund are traded based on their daily NAV.

2. What are the types of NFOs?

NFOs, at the time of their launch, are launched in two categories namely close-ended funds and open-ended funds. The details of each type of fund are mentioned below.

Open-ended funds
The majority of mutual funds are launched as open-ended funds. These types of funds allow the investors to enter or exit the fund at any time based on various factors like profit opportunity, goal realization, minimizing losses, etc. the units of the fund, therefore, keep fluctuating based on the demand-supply functions of the market. Investors can subscribe to the fund at the nominal rate (usually Rs. 10 per unit) during the NFO period. After the NFO period, when the units are traded based on the daily NAV, the investors stand to gain huge capital gains depending on the performance of the fund.

Close-ended funds
Close-ended funds, on the other hand, do not allow the investors to subscribe to the fund after the NFO period is closed. The number of units of the fund is fixed unlike open-ended funds and the fund is for a definite period of time, i.e. with fixed maturity. Investors can exit the fund after the completion of such a period. 

Close-ended funds can be listed on recognized stock exchanges to increase their liquidity and can be traded even after the closure of the NFO period. The NAV of the fund is determined based on the demand-supply function of its units. 

What are the points to consider before investing in NFOs?

Investing in NFOs is a very good opportunity to maximize the returns as the units can be subscribed at nominal rates and the returns are potentially higher based on the prevailing NAV at the time of redemption. However, there are several points that need to be considered while subscribing to an NFO. Some of such points are highlighted below. 

Lack of track record
NFOs are offered for the new mutual fund so no proven track record can be reviewed by investors to make an informed investment decision. The investors have to therefore rely on the reputation of the AMC and other details mentioned in the NFO to make an investment decision. 

Higher expense ratio
NFOs need a good amount of publicity to make the investors aware of the fund and the investment opportunity. It is therefore essential for the investors to check the expense ratio of the fund and ensure that it does not outweigh the net gains. 

Check if the fund is in correlation to the existing portfolio
Recently there have been many NFOs in the market that investors can choose from. However, while selecting the fund the investors must check if the fund is not similar to an existing fund in their portfolio. For example, if the fund is a large-cap fund and the investor already has one or two similar funds in their portfolio, investing in another will not add much value to the net returns or the diversification of the portfolio. On the other hand, many NFOs can be sector-specific or country-specific. In such a case, investors have to check if the fund is in line with other factors like their risk-return profile and investment goals. 

Review the SID carefully
Reviewing the SID (Scheme Information Document) is a crucial step that should not be missed by investors while investing in NFOs. It contains all the relevant information about the fund managers, their qualifications, and experience which is crucial for the funds’ performance. Other relevant information includes the investment profile of the fund, target sectors or securities, benchmark index, asset allocation ratio, etc. This helps the investors understand the returns expectation of the fund as well as the target investments where the fund will invest the pooled funds. Investors having a risk-return profile in line with that of the fund can thus invest in such funds.

How to invest in NFOs?

 Investment in NFOs can be done through two main routes i.e., the online or offline modes. The details of the same are mentioned below.

Online mode
The online mode of investment is suitable for investors already having a mutual fund account on platforms like Finity can simply select the NFO and invest by selecting the number of units to invest and paying for the same through online payment modes available on the platform.  

Offline mode
The offline mode of investment in NFOs is through registered brokers and distributors. Investors can contact their brokers and distributors providing them with the details of the amount to be invested and they can invest in the selected NFOs on their behalf. Investors can make hassle-free investments through such modes as all the necessary forms to be filled and the formalities to be met are looked after by these entities giving investors the benefit of ease of investment. The charges for such services are nominal when compared to the potentially high returns. 

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