Comparing the Investment Merits of Flexicap Fund and NIFTY 500 Index Fund: Which Offers Higher Returns?
In the world of investment, the performance of Flexicap Funds and NIFTY 500 Index Funds has been a topic of interest for many investors. Here's a breakdown of how these two investment options compare in terms of annual returns and risk-adjusted returns.
**Returns Comparison**
Over a 3-year period, Nippon India Flexi Cap Fund Direct Growth outperformed the NIFTY 500 benchmark with a return of 21.46%, compared to the NIFTY 500 Total Return Index's 20.48%. However, in the short term (1 year) and over a 5-year period, Nippon India Flexi Cap Fund underperformed the NIFTY 500.
The NIFTY 500 Total Return Index, which serves as the benchmark for Flexi Cap funds, has delivered a 10-year CAGR of about 14.1%. A more recent entrant, the NJ Flexi Cap Fund, shows a strong since-inception return of 18.7%, but a negative 1-year return, indicating some volatility. Motilal Oswal Nifty 500 Index Fund, on the other hand, offers steady benchmark-based returns with a return since launch of 17.98%.
**Risk-Adjusted and Other Risk Metrics**
The risk for Flexicap funds generally aligns with large diversified equity indices, but varies depending on fund management and stock selection. For instance, the Nifty500 Flexicap Quality 30 Index shows a standard deviation (volatility) around 15.5%, with a beta correlated to NIFTY 50 at 0.83 to 0.96, indicating moderate risk relative to large-cap indices.
Nippon India Flexi Cap Fund is ranked based on performance, risk management, and cost efficiency, suggesting reasonable risk-adjusted returns. Motilal Oswal Nifty 500 Index Fund is categorized with a "Very High" riskometer, consistent with equity Flexi Cap funds, and NJ Flexi Cap Fund follows suit.
**Summary**
Flexicap Funds like Nippon India Flexi Cap Fund can outperform the NIFTY 500 benchmark over medium term (3 years) but may underperform in shorter or longer terms, showing some inconsistency. NIFTY 500 Index Funds generally offer steady benchmark returns with moderate to high volatility; the NIFTY 500 TRI had a 10-year CAGR of about 14.1%.
As of September 30, 2021, the cumulative Assets Under Management (AUM) of Flexicap Funds is Rs. 1.7 lakh crore. Approximately 50% of Flexicap Funds have outperformed the NIFTY 500 Index in the past 5 years, which is significantly higher than the average annual returns of 10.1% provided by NIFTY 500 TRI during the same period.
In conclusion, Flexicap Funds offer the potential for higher returns than NIFTY 500 Index Funds but may carry higher volatility and inconsistent performance over different time horizons. On the other hand, NIFTY 500 Index Funds provide benchmark-like returns with a clearer risk/return profile. This comparison aims to help investors make an educated choice regarding whether to invest in Flexicap Funds or NIFTY 500 Index Funds.
It's important to note that no Flexicap Fund is invested in all 500 companies included in the NIFTY 500 Index. As more and more Flexicap Funds increase their international exposure, it might be necessary for schemes in the category to move away from the current NIFTY 500 TRI benchmark. The key benchmark that Flexicap Funds need to beat is the NIFTY 500 Total Return Index (TRI). A Mutual Fund with high foreign equity exposure might be better placed to beat its benchmark NIFTY 500 TRI.
In the realm of business and finance, investors show interest both in mutual funds, such as Nippon India Flexi Cap Fund, and equity funds, like the Motilal Oswal Nifty 500 Index Fund, as they delve into the world of investing. The performance of these funds, including their risk-adjusted returns, often serve as a topic of discussion among investors.
