Tata MF launches India’s first tourism index fund: Should you invest? | Personal Finance

The weightings within the index showcase the current focus:

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  Hotels and resorts (32%)
• 
  Airlines (19%)
• 
  Restaurants (19%)
• 
  Tour & Travel related services (16%)
• 
  Airports & airport services (10%)
• 
  Luggage (3%)

Investment Period:

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  Open for subscription from July 8th, 2024, to July 19th, 2024 (NFO Period)
• 
  Investors can potentially invest again on or before July 29th, 2024 (Reopening Date – Subject to confirmation)

Investment Objective:

The fund aims to mirror the performance of the Nifty India Tourism Index (TRI), a stock market index that tracks companies in the Indian tourism sector. Essentially, the fund’s performance will be tied to the performance of these tourism companies. It’s important to note that there’s no guarantee the fund will perfectly match the index’s performance (tracking error) and there’s no assured return on investment.

Fund Type:

• 
  This is an open-ended scheme, meaning investors can redeem their units at any time.
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  It’s an index fund, which passively invests in the companies that comprise the Nifty India Tourism Index.

Fund Manager:

Kapil Menon is responsible for managing the fund’s investments.

Minimum Investment:

The minimum investment amount during the NFO period is Rs. 5,000 and can be increased in multiples of Rs. 1.

Investment Charges:

There’s no entry load for investing in this NFO.

An exit load of 0.25% of the net asset value (NAV) applies if you redeem your units within 15 days of allotment.

The exit load (if applicable) is used to benefit the remaining investors in the fund, net of any Goods and Services Tax (GST)

 “High disposable income, infrastructure developments like better highway connectivity, improved railway comfort & speed and so many new airports have made travel easy, swift and safe. We are witnessing exponential growth in domestic aviation, hotels, restaurants and travel which augurs very well for the tourism segment.  All types of travel, be it pilgrimage, business, medical or leisure are registering a surge.  This makes a compelling case for looking at tourism as a segment and how one could invest and aim to benefit from the growth of this sector,” said Anand Vardarajan, Chief Business Officer at Tata Asset Management.

The launch of the Tata Nifty India Tourism Index Fund comes at a time when the Indian economy is showing remarkable resilience driven by robust investment and consumption. The growing middle class in India is fueling a surge in aspirational and experiential travel bolstered by significant investment in infrastructure, which have expanded air route capacities, making travel more accessible.

Additionally, technology advancements have revolutionized the travel and restaurant space, with the rise of online restaurant aggregators and a burgeoning delivery economy. Social media platforms further amplify the desire to travel, showcasing diverse destinations and experiences. “As a result, India’s travel and tourism expenditure is projected to soar from $140 billion in 2019 to an impressive $406 billion by 2030 (Source: Euromonitor, Systematix Institutional Research),” added Mr Vardarajan.

Benefits of the Index Fund:

This fund launch caters to investor interest in a potentially growing sector of the Indian economy – tourism.

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  Minimizing Tracking Error:
• 
  The fund aims to closely mirror the performance of the Nifty India Tourism Index (TRI). To achieve this (minimize tracking error), the fund managers will use various techniques:
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  Rebalancing the portfolio periodically to maintain the targeted weightings of each company.
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  Offsetting new investments with redemptions from existing investors to minimize buying and selling activity.
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  Fast-tracking the investment of new funds to reduce cash holdings (cash doesn’t generate returns like stocks).
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  Maintaining low cash levels overall to maximize investment potential.

Investment Allocation:

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  The fund primarily invests in companies that are part of the Nifty India Tourism Index. This constitutes between 95% and 100% of the fund’s net assets.
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  Up to 5% of the net assets can be invested in debt and money market instruments for liquidity purposes. These are essentially low-risk investments that provide easy access to cash when needed.

Risk Profile:

Due to the high weightage (up to 100%) in stocks (considered riskier assets), the fund is categorized as ‘Very High’ risk. Stock prices can fluctuate significantly, leading to potential losses for investors.

Debt and Money Market Instruments (Examples):

The document mentions various examples of debt and money market instruments the fund might invest in, including:

• 
  Commercial Paper
• 
  Certificates of Deposit
• 
  Treasury Bills
• 
  Short-term Corporate Bonds
• 
  Repos
• 
  Short-term Government Securities

Why is Tata MF bullish on this sector?

India’s travel and tourism sector is soaring, fueled by a burgeoning middle class, rising disposable income, and an insatiable desire to explore. This travel boom, driven by a confluence of factors, is transforming the way Indians travel and experience the world.

What’s driving the growth?

The rise in middle-income households, coupled with increased affordability due to budget-friendly airfares and growing route capacity, has empowered Indians to travel more frequently. Gone are the days of one annual vacation; many Indians are now taking multiple trips a year, prioritizing experiences over material possessions.

Travel has become an integral part of the Indian lifestyle, with a shift in focus towards unique and enriching experiences. From exploring local cuisines to staying in quaint cottages, travelers are seeking deeper connections with destinations. This trend is evident in the popularity of road trips, weekend getaways, and staycations, often targeting tier-2 and tier-3 cities.

India caters to a wide range of travel preferences. Whether it’s seeking spiritual rejuvenation through pilgrimage tours, indulging in wellness retreats with Ayurveda or yoga experiences, or conducting business in a dynamic environment, India offers something for everyone. Additionally, medical tourism is flourishing, attracting international patients with its high-quality care, cost advantages, and a vast pool of healthcare professionals.

Unpacking the sectors:

First Published: Jul 08 2024 | 1:09 PM IST