Nifty EV & New Age Automotive ETF FoF: Should I Invest?

Ans: The Groww Nifty EV & New Age Automotive ETF FoF aims to mirror the performance of the electric vehicle (EV) and automotive innovation sector. Since this is a recently launched fund (14th August 2024), historical returns aren’t available. However, the fund’s theme is closely tied to emerging trends in EVs and new-age mobility. This sector has growth potential but is also highly susceptible to market volatility, regulatory changes, and technological advancements.

Assessing Risks Associated with Sector-Specific ETFs
Sector-focused ETFs, like EV & New Age Automotive, carry inherent risks. These funds concentrate investments in a particular industry, leading to greater sensitivity to sector performance. As a result, they are more volatile than diversified equity funds or actively managed funds. In times of sector underperformance, such funds may experience sharp downturns, affecting the stability of your investment portfolio.

Disadvantages of Investing in Index-based ETFs Over Actively Managed Funds
Index-based ETFs, which passively replicate an index, don’t allow fund managers to capitalize on market inefficiencies. Here, the fund mirrors the index's performance without scope for outperforming the benchmark. Active management, on the other hand, enables fund managers to make tactical decisions, thereby offering potential for higher returns. Actively managed funds can provide added flexibility to manage sector-specific risks, which is limited in a passive strategy.

Regular Funds Through a Certified Financial Planner vs. Direct Funds
Direct fund investments are often promoted for cost savings due to lower expense ratios. However, regular funds through a Certified Financial Planner (CFP) offer strategic benefits that go beyond cost. A CFP assesses your entire financial picture, aligns investments with your goals, and monitors fund performance. These insights are especially valuable for complex or niche sectors like EVs. A CFP ensures regular fund selection that fits your portfolio, making the fee worthwhile for the tailored financial guidance.

Lump Sum vs. Systematic Investment Plan (SIP) Mode
When investing in sector-specific funds, systematic investments (SIP) can be beneficial. SIPs distribute your investment over time, mitigating risks tied to market timing. Lump sum investments in volatile sectors could lead to greater losses if market conditions are unfavorable at the time of entry. A SIP also provides you with the opportunity to average costs in case of sector underperformance.

Capital Gains Taxation on Mutual Funds
Equity mutual funds have revised capital gains tax rates:

Long-Term Capital Gains (LTCG): Above Rs 1.25 lakh, taxed at 12.5%.

Short-Term Capital Gains (STCG): Taxed at 20%.

For equity-oriented funds like this ETF FoF, it’s essential to monitor your holding period to optimize tax impact. In contrast, debt mutual funds are taxed based on your income tax slab, adding flexibility depending on your investment goals.

Recommended Investment Approach
For investors new to this niche, starting with a SIP can be a cautious yet strategic approach. You may consider allocating a minor portion of your overall equity investments into this fund, with the rest in diversified or actively managed equity funds. Limiting initial exposure is wise until the fund has a track record to evaluate performance reliability.

Monitoring Performance Over Time
As this ETF lacks historical performance, periodic assessment of both sector trends and the fund’s growth is crucial. Observe how regulatory changes, EV adoption rates, and advancements in battery technology impact this sector. This evaluation can offer insights into when you might increase your investment in this sector if favorable trends emerge.

Finally
The Groww Nifty EV & New Age Automotive ETF FoF Direct Growth is promising for investors with high risk tolerance, especially those interested in the EV and automotive sectors. Its niche focus offers potential returns but with elevated risks due to the limited scope and recent launch. For most investors, starting small with a SIP is a balanced way to participate in this sector without high exposure risk.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment