Decoding the Technicalities before investing in Axis Nifty Bank Index Fund NFO

Introduction:
Investing in mutual funds, particularly in new fund offers (NFOs), can be a daunting task for many investors due to multiple schemes, too much technical jargon. However, mutual funds are well-known for their wealth-building potential. With the economy poised for growth there's a perfect opportunity on the horizon for investors. In this guide, we shall decode some of the technicalities to make investing simple for the investors.

Investments through Passive funds:
Passive investments mirror and closely track a benchmark index. In mutual funds, passive investing may entail investing in Index funds or ETFs that replicates the constituents of a market index (e.g., Nifty 50 the stock market index of the National Stock Exchange (NSE) of India) by holding the same stocks in the same proportions as the index they track. ETFs trade like stocks on exchanges. This means you'll need a demat account to buy and sell them, incurring associated fees. Whereas, Index Fund can be purchased just like any other mutual fund directly from the fund house at their Net Asset Value (NAV) or through a mutual fund distributor.

The major advantages are:
1. Simple and accessible to all investors.
2. Standardised so minimal decision-making.
3. Aligned with India's growth potential
4. Lower costs

Passive investing has long dominated developed markets, and this trend is now catching on in India. We're seeing a surge in investment flowing into passive mutual funds in recent years. The following table shows the rise of the passives in India.

Source: MFI Explorer, Axis MF Research Data as on 31st March 2024. Includes Exchange Traded Funds, Fund of Funds (Domestic and Overseas) and Index Funds as categorized by AMFI. The above graph is used to explain the concept and is for illustration purpose only and should not used for development or implementation of an investment strategy. Past performance may or may not be sustained in future.

The Significance of the Nifty 50:
By and large, Index funds track broad market Indices like Nifty 50 due to the following reasons:
1. The NIFTY 50 comprises of 50 largest and most liquid, out of the approximately 1600 companies listed on NSE.
2. The NIFTY 50 represents about 65% of the entire market and is a true indicator of the overall health of the Indian stock market.
3. The NIFTY 50 covers major sectors of the Indian economy and offers exposure to the Indian market in one efficient portfolio.
4. The Index has been trading since April 1996 and is thus well suited for benchmarking, index funds (NSEIndia.com).

The Significance of the Nifty Bank Index:
Within the broad index, the Nifty Bank Index holds a prominent position, representing the performance of the banking and financial services sector. With a weightage of 34% in the Nifty 50, this sector is widely regarded as the most stable and resilient within the financial industry.

Source: Axis MF Research, Data for top 5 sectors in Nifty 50 as on 31st March 2024. Constituents as on March End of every Year. Past performance may or may not be sustained in the future. Sector(s) mentioned above are for the purpose of illustration and should not be construed as recommendation. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

Opportunities within the banking sector in India:
Understanding the dynamics of the Nifty Bank Index is essential for investors looking to capitalize on opportunities within the banking sector.

India's banking sector distinguishes itself among global peers due to several key advantages:

• Despite some of the regulatory complexities, Indian banks enjoy the advantage of lower operating costs and a robust economy, reflected in their cost-to-income ratio ranging from 40-50%, which is lower compared to many other countries.
• In the last few years, banks witnessed strong improvement in Net Interest Margins (NIMs) led by higher rates and a mix shift towards higher margin loans. (Source: Refinitv, Company data, Morgan Stanley Research.)
• Even amidst challenges like the COVID-19 pandemic and IL&FS default, banks maintain robust balance sheets, with high capital ratios, supported by proactive regulatory controls. (Source: CEIC, RBI, Morgan Stanley Research estimates)
• Indian banks enjoy the advantage of strong credit demand. Although there may be short-term concerns regarding the Credit-Deposit (CD) ratio, overall credit growth remains resilient and diversified, driven by healthy performance in both the retail and corporate sectors. (Source: CEIC, RBI, Morgan Stanley Research estimates)
• Moreover, there is under-penetration of credit, as evidenced by low indicators, such as household debt to GDP (%), corporate debt to GDP (%), and mortgage % to nominal GDP, as compared to global figures. This presents a significant long-term growth opportunity, according to data from BIS, Jefferies, and Axis MF Research as on Q3 2023.
• The digital transformation within Indian banking has brought about a revolution in digital transactions and UPI payments. Indian banks have achieved a level of digital banking maturity far surpassing the global average in terms of their digital offerings and capabilities.

Exploring Growth Opportunities:

Investing in the Nifty Bank Index offers several opportunities for growing wealth over the long term.

• Offers exposure to a vital sector of the economy, intricately linked to India's narrative of growth.
• Given the under-penetration of credit and the rising demand for financial services, the banking sector offers promising long-term growth opportunities.
• Moreover, historical data indicates that the Nifty Bank Index has the potential to serve as a long-term wealth generator, outperforming other sectors by delivering higher returns.

Source: NSE, Axis MF Research. Data as of 31st March 2024. Past performance may or may not be sustained in the future. Values normalized to 100 as on 1st January 2000 in the chart. CAGR Returns from 1st January 2000 to 31st March 2024. The performance figures pertain to the index and do not in any manner indicate the returns/performance of the scheme.

• Despite market fluctuations, the index has demonstrated resilience, delivering consistent returns over time, and outperforming other sectors.

Source: MFI explorer, Axis MF Research. Data as on 31st March 2024 Past performance may or may not be sustained in the future. Rolling returns calculated on daily basis. All returns in CAGR. The performance figures pertain to the index and do not in any manner indicate the returns/performance of the scheme.

Source: ACE MF, Axis MF Research. Past performance may or may not be sustained in the future. The performance figures pertain to the index and do not in any manner indicate the returns/performance of the scheme.

• Reasonable valuations provide an appealing entry point for investors, helping to mitigate downside risks while maximizing potential gains. Bank ROAs have improved from 0.20% in FY19 to 1.10% in FY23. Nifty Bank Index is trading at P/B of 2.77, in line with 10 year average of 2.72

Axis Nifty Bank Index Fund - Seizing Opportunities in the Banking Sector:
Investors now have the option to focus on the Banking sector. The Axis Nifty Bank Index Fund is a strategic response to exploit the opportunities within India's banking sector. This fund seeks to track the performance of the Nifty Bank TRI. As such, Axis Nifty Bank Index Fund brings a unique combination of being focussed on banking sector with the simplicity and cost effectiveness of passive investing.

Source: NSE Data, Axis MF Research; Market Cap Classification as per Master SEBI Circular No. 2.7.1 dated May 19, 2023, the universe of ‘Large Cap’ shall consist of first 100 companies in terms of full market capitalization & “Mid Cap” shall consist of 101st to 250th company in terms of full market capitalization.

Investing in the Axis Bank Nifty Index Fund offers several advantages:

• It provides exposure to India's thriving banking sector, poised for growth amidst economic expansion.
• The fund's portfolio of 12 large and most liquid banking stocks mitigates individual stock risk while offering broad market exposure.
• Reasonable valuations make it an attractive option for long-term investors. The index has historically outperformed broader market.
• Furthermore, the flexibility of Systematic Investment Plans (SIPs) with minimum investment of only Rs.500/- makes it accessible to wide range of investors.

Details of the NFO are as under:

This product can be suitable for investors seeking:
• Can be looked as a long term wealth creation solution
• May capitalise on the growth potential of the banking sector as a strategy
• Relatively Higher risk tolerance
• Want to diversify their portfolio

Risk analysis:

As the fund tracks the markets which are volatile and cannot be predicted, investors should understand the risks associated before investing. Investors should firstly understand the fund risk and then align with their personal risks.

• Market volatility is a primary concern, as fluctuations in stock prices can affect the fund's performance
• As the fund is sector specific to banking, it becomes vulnerable to sector-specific risks such as changes in interest rates, economic downturns, and regulatory developments impacting banking operations
• Since the fund aims to replicate the constituents of the Nifty Bank Index, any underperformance of the index could lead to lower returns for investors.

It's essential for investors to conduct thorough research, understand these risks, and assess whether they align with their investment objectives and risk tolerance before investing in the fund. Consulting with a financial advisor can provide valuable insights and guidance in navigating the potential risks associated.

Conclusion:
The Axis Nifty Bank Index Fund could presents an ideal opportunity for investors to capitalize on the growth potential of India's banking sector. With the economy poised for growth, the banking sector is set to surge. Additionally, the dual advantage of passive investing coupled with sector focus offers a unique opportunity for wealth creation and the achievement of investment goals. Moreover, the present realistic valuations make the timing perfect for entry and long-term capital appreciation. As such, the Axis Nifty Bank Index Fund brings an opportune moment to embark on a journey of growth and prosperity. To invest in the fund, investors can visit Axis MF app and invest swiftly without any hassle.

Date & source: 31st March 2024, Axis MF Research
Disclaimer: Past performance may or may not be sustained in the future.

Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation.

NSE Disclaimer: It is to be distinctly understood that the permission given by NSE should not in any way be deemed or construed that the SIDs / Schemes of Axis MF has been cleared or approved by NSE nor does it certify the correctness or completeness of any of the contents of the SIDs. The investors are advised to refer to the SIDs for the full text of the 'Disclaimer Clause of NSE. Constituents of index - https://www.niftyindices.com/indices/equity/sectoral-indices/nifty-bank

Axis Nifty Bank Index Fund is not sponsored, endorsed, sold or promoted by NSE Indices Limited (formerly known as India Index Services & Products Limited (IISL)). NSE Indices Limited does not make any representation or warranty, express or implied (including warranties of merchantability or fitness for particular purpose or use) and disclaims all liability to the owners of Axis Nifty Bank Index Fund or any member of the public regarding the advisability of investing in securities generally or in the Axis Nifty Bank Index Fund linked to Nifty Bank TRI or particularly in the ability of the Nifty Bank TRI to track general stock market performance in India. Please read the full Disclaimers in relation to the Nifty Bank TRI in the in the Offer Document / Prospectus / Scheme Information Document.

Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs.1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.