Check costs, overlap with existing portfolio before buying a total mkt fund

Aditya Birla Sun Life (ABSL) Asset Management Company (AMC) has launched the ABSL Bombay Stock Exchange (BSE) Total Market Index Fund and exchange-traded fund (ETF). AMCs such as Mirae, Bandhan, Groww and Angel One offer funds based on the Nifty Total Market Index. These products provide exposure to almost the entire equity market through a single passive investment.

What total market funds offer

The BSE Total Market Index assigns weights to stocks by their free-float market capitalisation. It holds more than 1,000 stocks and targets 98 per cent of the BSE AllCap Index by market capitalisation, spanning largecap, midcap, smallcap and microcap companies.

“The index covered around 93 per cent of India’s total market capitalisation,” says Hemen Bhatia, head – passives, Aditya Birla Sun Life AMC. As of August 31, 2026, largecaps accounted for about 56 per cent, midcaps for 20 per cent, smallcaps for 10 per cent and companies beyond smallcaps for about 7 per cent of the index.

Simplifies investing

A total market fund reduces the need to allocate separately across market cap segments. “The investment philosophy is to own the market rather than choose a part of the market,” says Bhatia.

The BSE Total Market index covers 22 sectors. “The broad and adaptive investment universe allows investors to participate in a wider opportunity set as India’s capital markets evolve,” says Bhatia.

Exposure to a diversified set of stocks reduces stock-specific risk and frees investors from the task of identifying the next winning company or sector.

“A total market fund offers simplicity and automatic rebalancing,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com.

“Such an index can also help control the fear of missing out when midcaps and smallcaps perform very well,” says Avinash Luthria, Sebi-registered investment adviser and founder, Fiduciaries.

Volatility and liquidity risk

A portfolio of more than 1,000 stocks may appear highly diversified, but the largest companies dominate because weights depend on free-float market capitalisation. “A significant portion of the performance is driven by the largest constituent. Many smaller constituents have little impact on performance because of their low weights,” says Sadiya Khan, chief investment solution officer, Mirae Asset Sharekhan.

Smallcaps and microcaps can increase index’s volatility. “Smallcaps and microcaps are generally more sensitive to changes in investor sentiment and liquidity conditions and can suffer sharper price corrections during downturns,” says Khan.

Despite the index’s liquidity filters, many smaller companies have low liquidity and wider bid-ask spreads. Buying or selling these securities in large volumes can lead to high impact costs.

Total market funds are popular globally. “But India’s shallower market and lower liquidity can make index replication difficult and lead to high tracking error,” says Alekh Yadav, head of investment products, Sanctum Wealth. Liquidity tends to decline severalfold during periods of high market stress, making both purchases and exits difficult.

Who should consider them

Total market funds may suit retail investors who contribute small amounts through systematic investment plans (SIPs). “They may be unable to invest in multiple funds. A total market fund offers them a simple way to gain exposure to all market caps,” says Yadav.

They may also suit investors who cannot decide how much to allocate to different market segments. “These funds suit investors who want market cap diversification without actively deciding how much to allocate to large, mid and small caps,” says Rohan Goyal, investment research analyst, MIRA Money. They are also ideal for long-term buy-and-hold investors and new equity investors, according to Goyal.

Investors must be willing to tolerate equity market volatility and should have a long horizon.

Those who want greater control over allocations may find these funds less suitable. “Investors who have a strong view on market cap allocations, who seek higher midcap or smallcap exposure, and tactical investors who rotate across market cap segments based on valuations and market cycles may not like these funds,” says Goyal.

High net worth individuals with access to wealth managers who can advise on allocations may also avoid them.

One or multiple funds?

Total market funds offer simplicity, while separate largecap, midcap and smallcap funds give investors greater control over allocation.

“Separate funds allow investors to customise their market cap allocations, but they require more monitoring and rebalancing,” says Kumar.

Multiple funds allow investors to change their market cap tilt with the market cycle. “Midcaps and smallcaps may outperform during a recovery. Near market peaks, investors may prefer greater largecap exposure to reduce downside risk,” says Yadav.

Check overlap and costs

Investors with an existing portfolio should assess whether a total market fund adds diversification. “They should check for overlap with their existing portfolio,” says Kumar. He adds that overlap above 50–60 per cent indicates limited diversification.

Before choosing an index fund, check its expense ratio, tracking error, assets under management (AUM) and the underlying index’s methodology. Keep a close watch on expense ratios. “Unlike the Nifty 50, there isn’t enough competition among fund houses in this segment to ensure that expense ratios do not rise in the future,” says Luthria.

ETF investors need to run additional checks. “They must review trading metrics like average daily volume, bid and ask spreads, and premium or discount to net asset value,” says Kumar.