Index Funds/Exchange Traded Fund (ETF) Schemes UTI Nifty Index Fund (An open-ended scheme replicating/tracking Nifty 50 index) This product is suitable for investors who are seeking*: •Capital growth in tune with the index returns •Passive investment in equity instruments comprised in Nifty 50 Index. * Investors should consult their financial advisers if in doubt about whether the product is suitable for them. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENT CAREFULLY. Growth of Equity Exchange Traded Funds and Index Funds in India ETFs and Index Funds AUM as % of Total Industry AUM* ETF and Index Fund AUM Growth 10% 347,443 10% 308,689 7% 6% 162,393 144,788 % share% 4% 3% AUM in Rs. Crs. Rs. inAUM 81,873 2% 1% 52,574 14,093 22,608 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Jun-21 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Jun-21 Period Period Major Growth Enablers • Retirement Funds are mandated to invest at least 5% of annual accretion in Equities. Many of them have opted Equity ETFs/Index Funds for equity investment. • Categorization and Rationalization of Mutual Fund Schemes by SEBI$ • Benchmarking of funds moved from Price Return Index (PRI) to Total Return Index (TRI). • Challenges in generating alpha due to improving efficiency of equity market and reducing information asymmetry. * Month End Asset Under Management (AUM). Source: MFI Explorer. $ with reference to circular number SEBI/HO/IMD/DF3/CIR/P/2017/114 SEBI - Securities and Exchange Board of India. TRI refers to index values which also account for dividends, whereas in case of Price Return Index (PRI), dividends distributed by companies forming part of an index are not considered. 2 What is an Equity Index? Rule Based Representation Indexing An Index is a rule based portfolio Indices represents certain Investing in a portfolio which is where, stocks/companies are characteristics of a market aligned to particular index. I.e. selected based on pre-defined segment, like market equity portfolio will hold same rules without any individual’s capitalization, sectors, themes, stocks and in same proportion as biases factors etc. represented by an Index. 3 Why Indexing? Easy to Understand Low Cost Low Risk It reduces the process Normally, index funds Helps in reducing un- of selection vis-à-vis and ETFs are systematic risk and an individual available at lower rewards for taking stock/fund. cost than actively systematic risk. managed funds. Market is efficient No Biases Zero Sum Game Movement in prices Elimination of Positive alpha* of one are based on new individual’s biases & market participant information and subjective opinion has to come from indices reflects the while picking negative alpha of collective stocks/funds another market interpretation by the participant various market participants * Alpha is difference between returns generated by a scheme and its benchmark. When a scheme generate more returns as compared to its benchmark is called positive alpha. When scheme generate less returns as compared to its benchmark, is called negative alpha. 4 Why Indexing? S&P Indices versus Active Fund (SPIVA) India Scorecard • SPIVA India scorecard compares the performance of actively managed Indian mutual funds with their respective benchmark indices over 1, 3, 5, and 10 year period. • The comparison is done in a scientific way considering survivorship bias correction, style consistency, apple-to-apple comparison, asset weighted returns etc. • This semi-annual report is called as SPIVA scorecard. • Extract from the Year End December 2020 Report: Source: file: https://www.spglobal.com/spdji/en/documents/spiva/spiva-india-year-end-2020.pdf ‘SPIVA report’ is published twice in a year i.e. for the period ending June and December of each year. The extract from latest available report is mentioned above. 5 Mutual Fund Products for Index Investment • Exchange Traded Funds (ETFs) and Index Funds, both can be used for Investing in an Index under Mutual Fund route. • Both are very similar from fund management perspective. • Major Differences: Features ETFs Index Funds Net Asset Value (NAV) Real Time End of the day Authorised Participants (APs) on stock Liquidity Provider@ exchange Only by Fund + Fund itself Portfolio Disclosure Daily Monthly Possible if investor has required inventory of Intraday Trading Not possible units Transaction costs are Cost effectiveness Each investor bears their own transaction cost spread across the fund Holding format Compulsory in Demat form Physical + Demat Controlled by investor as investor can suggest Investment decision Not applicable the price/NAV at which they want to transact @ - In case of ETFs the Scheme offers units for subscription / redemption directly with the Mutual Fund in multiple of creation unit size to Authorized Participants / Large Investors only. Investor can buy/sell ETF units in cash segment on secondary market of exchanges where it is listed in multiple of 1 unit. AMC may appoint APs for providing liquidity on exchanges. Please read scheme related documents for “creation unit size” 6 How Exchange Traded Fund works? ETFs are traded on exchange just like a normal stock Money Money Various investors, buying & selling ETF units on Secondary ETFs ETFs stock exchanges, creates natural liquidity. Market Buyers Stock Sellers Exchanges Generally, all trading and settlement rules applicable to a stock, are also applicable to ETFs. AMCs appoint Authorized Participants (APs) to provide additional liquidity. ETFs Money Money ETFs When there is high demand of units on exchanges, APs create units from AMCs and sell these units on exchanges. When there is high supply of units on *APs / LIs Primary exchanges, APs buy units on Market exchanges and redeem these units ETFs Money Money ETFs with AMCs. Fund House * AP – Authorized Participant. LIs – Large Investors. Fund House – Asset Management Company 7 How to Transact – ETFs v/s Index Funds Investor can get in touch with their stock Stock Exchanges ETF units can be held only in dematerialized broker or sub-broker to buy/sell ETFs through ETF Units (demat) form. The holding is reflected in their broking account, similar to transacting in demat statement available with demat a stock. participants where demat account is maintained Investor can get in touch with AMC or Index Fund units can be held in digital or IFA/RIA/Distributor etc., to buy/sell Index Fund dematerialized form. In case of digital similar to transacting in traditional open- holding, investor can get statement of ended mutual fund scheme account from AMC or its Registrar and Index Fund Transfer Agent. Fund House Additionally ETFs can be bought/sold through Asset Management Companies (AMCs) in multiple of creation unit size. 8 About ‘Nifty 50’ Index@ Parameter Details Broad Selection Criteria* Top 50 companies by free float market capitalization (M-Cap) Number of constituents 50 Market Capitalization and Exposure$ Top 5 Stocks# Weights in % 12,403,524 RELIANCE INDUSTRIES LTD. 10% HDFC BANK LTD. 9% 53% Market Exposure INFOSYS LTD. 9% Cap in Rs. Rs. Crores in Cap Stocks - ICICI BANK LTD 7% M 1,333,256 HDFC LTD. 6% 148,633 55,208 Others 59% Total M-Cap of Index Median M-Cap M-Cap of Top Company M-Cap of Bottom Company Data as on July 30, 2021. @Nifty 50 Index is an index product of NSE Indices Limited (a subsidiary of National Stock Exchange of India (NSE) Limited). Source: www.niftyindices.com, Bloomberg. * Subject to other selection criteria defined under index construction methodology. $ Data based on Total Market Capitalization of companies. % Market Exposure = Total Market Cap of Index / Market cap of all listed companies in NSE. # The 9 Stocks referred in this literature are not an endorsement by the Mutual Fund and AMC of their soundness or a recommendation to buy or sell these stocks at any point of time. The name of companies are only for reference purpose. Nifty 50 Index Comparison – Broad Sector Exposure Exposure in % Nifty 500 31% 13% 9% 12% 5% 30% Nifty 50 37% 18% 11% 11% 5% 18% Index S&P BSE Sensex 41% 19% 11% 11% 4% 14% Nifty Next 50 17% 2% 7% 19% 3% 53% FINANCIAL SERVICES IT OIL & GAS CONSUMER GOODS AUTOMOBILE OTHERs Data as on July 30, 2021. Source : NSE, BSE, Bloomberg. # The sectors referred in this literature are not an endorsement by the Mutual Fund and AMC of their soundness or a recommendation to buy or sell at any point of time. The sectors are only for reference purpose. 10 Nifty 50 Index Comparison – Returns Point to Point Annualized Returns Growth of Rs. 10,000 53% 34,639 33,143 32,524 44% 42% 19,896 19,767 19,419 15,289 14,643 14,484 14,416 14,391 14,141 Returns in % inReturns 15% 15% Rs. inAmount 14% 13% 13% 14% 13% 13% 13% 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Period Period Nifty 500 TRI Nifty 50 TRI S&P BSE Sensex TRI Nifty 500 TRI Nifty 50 TRI S&P BSE Sensex TRI Monthly Investment Annualized Returns Growth of Rs. 10,000 2,678,457 60% 2,559,052 2,532,795 48% 43% 27% 23% 23% 933,633 921,140 914,483 Returns in % inReturns 18% 18% 17% Rs. inAmount 16% 15% 15% 519,293 496,543 492,007 150,183 144,308 142,291 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Period Period Nifty 500 TRI Nifty 50 TRI S&P BSE Sensex TRI Nifty 500 TRI Nifty 50 TRI S&P BSE Sensex TRI Data as on July 30, 2021. TRI i.e.