Investment matchmaking
isn’t always easy

As an investor, you may always be on the lookout for a strategy that best fits your needs and portfolio requirements.

There are plenty of options to choose from

Stocks, Bonds, Mutual Funds, Hedge Funds, Real Estate, Gold - when it comes to investing, you’ve heard it all.

But are you missing out on
something interesting?

First, let’s look at the different
types of investors

Shyam

Beginner

Jaya

Informed

Mr. Shah

Retired

John

Experienced

Shyam has just started his financial journey and has heard about equity investing through friends and colleagues but is overwhelmed with the choices of stocks and mutual funds. As a beginner, he is eager to find a simple and easy way to begin equity investing.

Current Portfolio:
Fixed deposits and savings bank account with no exposure to equities.

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Jaya understands the potential of investing in equity but has exposure to stocks only belonging to the industry she is working in or the ones recommended by her colleagues. Considering she is occupied with office and home routines, she does not have enough time for research. She is looking to expand her equity portfolio, and is in need of an equity investment option which is fairly modular.

Current Portfolio:
Heavily tilted towards fixed income products with comparatively lesser exposure to direct stocks and mutual funds

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Mr. Shah is a retired investor who is paying for his expenses from his lifelong savings, which are majorly invested in Fixed Income securities. With interest rates falling, his monthly cash inflows are reducing. He understands the need to increase his exposure to equities to enhance his income. He is looking at a strategy which can help give his portfolio steady growth, all this with the lowest possible cost.

Current Portfolio:
Majority invested in relatively less risky fixed income securities

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John is an experienced and evolved investor. Over the years, he has accumulated many mutual funds in his portfolio. In his investment journey, he has realized that some funds beat the broad market and some do not. He is now considering consolidating a component of his portfolio to a strategy which is aligned with the market while investing in some strategies which offer distinct themes and strategies.

Current Portfolio:
Well balanced between different asset classes

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What if one investment strategy could meet these varying investor needs?

Welcome to the world of
PASSIVE INVESTING

An investment strategy with minimal trading, for long-term investment horizons

Get in it for the long haul with INDEX INVESTING

The most common strategy of passive investing is to participate in the overall trajectory of the market

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How does a Passive Fund work?

Passive Funds invest in securities with the aim to track the movements of
the market INDEX that they intend to replicate.

What is an INDEX?

A stock market index is a measure of the relative value of a group of stocks in numerical terms. The two major Indian stock market indices are Nifty 50 and BSE Sensex.

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Let’s take the example of a Fund tracking Nifty 50
It holds Nifty 50 stocks in the same proportion as the Index and mirrors
the movements of the benchmark.

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Nifty 50 goes up 

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      Fund Value goes up 

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Nifty 50 goes down 

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      Fund Value goes down 

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The fund manager, unlike in active funds, does not actively decide what securities the fund invests in. This means that only minor, periodic adjustments are made to keep the fund in line with the index or the market segment that it is tracking.

This also means that the proportion of gains or losses on the fund are approximately equal to the proportion of gains or losses on Nifty 50 Index*.

*The difference between Index returns and Passive fund returns can be attributed to Tracking Error. This reflects the expense of managing the fund, cash flow of the fund, and the cost incurred in realigning the portfolio when index composition changes.

Varying investor needs
can be met with two kinds
of
Passive Fund solutions:
Exchange Traded Fund
(ETF)
or Index Fund

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Shyam

Beginner

IDFC MF ETF

Jaya

Informed

IDFC MF ETF

Mr. Shah

Retired

IDFC MF ETF

John

Experienced

Beginners can familiarize themselves with the equity asset class with Passive Funds that generate index-linked returns.

Structured equity exposure with reduced impact of any particular stock or sector on portfolio risk and returns.

Passive investing is a cost-effective route to a diversified equity market exposure.

Complement existing asset allocation with an investment passively tracking the overall market trajectory.

Exchange Traded Funds (ETFs)

Index
Funds

A type of fund that holds a basket of securities and trades on an exchange just like a stock.

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Simplicity

ETFs combine the range of a diversified portfolio with the simplicity of trading on a single security. ETFs are in dematerialized form and are settled like any other share listed on the stock exchange in T+2 days.

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High Liquidity

ETFs can be bought and sold at any time during trading hours at real-time prices like stocks instead of the end-of-day prices.

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Mechanism

You can invest in ETFs through your existing stock broker, or open a demat account with a broker. Larger investments can be transacted directly with the Mutual Fund.

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Costs Involved

In addition to demat charges, investors pay brokerage to the stock broker at the time of purchase and sale.

Become a passive investor with an ETF

Step 1

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Log in to your trading/
demat account

Step 2

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Select the ETF of
your choice

Step 3

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Make the investment

A portfolio of stocks or bonds that is, like an ETF, designed to mimic the composition and
performance of a financial market index.

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Simplicity

Investment in an Index Fund is the same as investing in any Mutual Fund. You may visit the Mutual Fund website or contact your distributor.

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Diversification

Like investing in an ETF, any one Index Fund too can provide diversification across various stocks or sectors.

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Net Asset Value (NAV)

While the NAV of ETFs fluctuate with every trade, Index Mutual Funds compute and disclose NAV only once, at the end of the day.

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Costs Involved

There is no brokerage cost at the time of purchase and sale. However, this may be replaced by custody and administration costs.

Become a passive investor with an Index Fund

Step 1

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Contact your distributor or log in to an AMC website

Step 2

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Select the Index Fund
of your choice

Step 3

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Make the investment

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Frequently Asked
Questions

I know stocks. How is Index Investing different?

See where the two Passive Funds lie on the market investment spectrum.

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Exchange Traded Fund or Index Fund - what are the differences?

Subtle differences can become the right fit for your portfolio.

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What does it mean to replicate an Index?

Replication of an index means holding the securities of the index being replicated in the same proportion as the index with the intention to mirror the performance of the index (before expenses charged by the Asset Management Company).

How can I invest in an ETF and Index Fund?

Investors can invest through their existing stock broker or can open a demat account with a broker and begin investing. Larger investments i.e. with minimum unit creation size can be transacted directly with the AMC.

What is the cost difference between investing in an ETF and an Index Fund?

In an ETF, in addition to the demat charges, the investor will be charged a brokerage by the stock broker at time of purchase and sale. The NAV at which the transaction is traded includes the expense ratio charged by the asset management company. In an Index Fund, the total expense ratio reflects the cost of ownership, in addition, there can be an exit load up to a certain tenure.

How frequently is the price of an ETF and Index Fund available?/How liquid is an ETF and Index Fund?

ETFs are listed and traded on exchanges like stocks. Hence, they can be bought and sold at any time during trading hours of the day at real time prices. Index Funds compute and disclose NAV only at the end of the day.

Who are the key participants in an ETF?

Asset Management Company (AMC) sets the investment objective and manages the ETF.

Authorized Participants (APs) are trading participants authorized by the sponsor of the ETF (the AMC) to create and redeem ETF units in the primary market. Primary role of APs is to create liquidity of the ETF units in the market.

Brokers facilitate investors to buy and sell ETF units on the exchange.

Index Providers are institutions that create and maintain indices that the ETF aims to replicate.

Stock Exchanges are the platform on which the ETF schemes are listed. An investor can trade in ETFs on exchange throughout the day at the prevailing market price.

How are Equity ETFs taxed?

Equity ETFs are taxed as per the tax provisions applicable to equity-oriented funds:
Less than 12 months holding --- Short term capital gains ---- 15% tax
12 months or more holding --- Long term capital gains ---- 10% tax

What are the benefits of Passive Fund investing?

Low Cost - Passive Funds offer a cost-effective route to a diversified market exposure. With minimal fund manager intervention in replicating the index, costs can be less than an actively managed Mutual Fund.

Diversification - Passive investing can provide immediate exposure to a basket or group of securities for instant diversification across a broad range of asset classes including equities, bonds, commodities, investment themes, etc. This can help reduce the impact of any particular stock or sector on portfolio risk and returns.

Ease of Investment - ETFs are listed on stock exchanges and can be traded (bought or sold) at any time the market is open through your demat account. An Index Fund can be bought or sold just like any other Mutual Fund i.e. through your distributor or by visiting the Mutual Fund’s website.

Liquidity - ETFs are listed just like equity stocks and hence benefit from market liquidity with continuous pricing through the day. They can be bought and sold at any time during trading hours of the day at real time prices.

Eliminates stock selection risk – Since a passive fund invests in the index, risks associated with active management i.e. stock selection are eliminated

Simple and easy for first-time investors - Beginners can familiarize themselves with the Equity Asset class through a passive fund.

An investor education initiative.
To complete KYC process, investors are required to submit CKYC form along with a recent photograph, self-attested copy of PAN Card and valid address proof to any designated KYC Point of Service. For more information on KYC along with procedure to change address / bank details / phone numbers, etc please visit IDFC Mutual Fund website i.e. www.idfcmf.com. Investors can file their complaints with the mutual fund through their designated investor service contact points. Alternatively, investors can write to us at investormf@idfc.com or Call us on 1800 266 6688/ 1800 300 666 88. Investors may also register their complaint on SEBI SCORES portal. Investors are cautioned to deal only with the Mutual Funds registered with SEBI, details of which can be verified on the SEBI website under “Intermediaries/Market Infrastructure Institutions”. For more information, please click here.

By registering on this portal, you hereby authorise IDFC Mutual Fund, IDFC Asset Management Company Limited and/or its authorized service provider(s) to communicate Mutual Fund scheme related matters/documents and other information related to the investment products/facilities either through telephone, email or such other means overriding any NDNC registration.

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

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