The Tata Asset Management Mutual Fund launched a new fund offer (NFO) of its Tourism Index Fund on July 8, 2024. The fund will track the Nifty India Tourism Index –TRI, offering investors exposure to the tourism sector by investing in companies engaged in travel, tourism, and hospitality business, which form part of the fund’s benchmark index.
NFO Details:
The index fund is open-ended with no entry load but there is an exit load of 0.25 per cent if the units are redeemed within 15 days of allotment. The minimum investment is Rs 5,000 and further in multiple of Rs 1.
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Investment Strategy:
With a focus on diversification and risk management, the fund has a maximum stock level capping in the index fixed at 20 per cent. It can include up to 30 stocks from its parent index, the Nifty 500, selected based on free-float market capitalization.
The fund targets investors who have a long-term investment horizon and look for capital appreciation. The scheme measures ‘very high risk’ on the risk scale.
Investment Objective:
Anand Vardarajan, Chief Business Officer at Tata Asset Management, highlighted in the press release, “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.”
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Quoting Euromonitor and Systematix Institutional Research, He also mentioned, “India's travel and tourism expenditure is projected to soar from $140 billion in 2019 to an impressive $406 billion by 2030.”
According to Tata Mutual Fund, the current economy is experiencing rapid growth supported by robust investment and consumption. Individuals with disposable income are spending on aspirational and experiential travel. With improved infrastructure and expanded air routes, travelling is becoming easy and more accessible.
OLM Take
There is no denying that the travel and tourism sector has shown robust performance post-COVID-19, with companies in this space delivering higher returns. This sector typically thrives in strong economic conditions but suffers during weaker periods when people curtail discretionary spending.
Looking at the Nifty Tourism Index, remained nearly flat or in negative territory for a brief period of 10 years from 2008 to 2018. The concentrated composition of the index also adds to the risk, with the top three companies accounting for more than 50 per cent of the portfolio. For the time being, investors may prefer to skip the fund.
