The index fund category of mutual funds has emerged as an extremely popular mode of investment that rests on the pillars of transparency, simplicity and affordability. According to recently released AMFI data, at the end of May, there were 217 index funds and the number of folios stood at 83.63 lakh. The total money managed by the schemes was substantially more than Rs 2.26 lakh crore.
“Investors are coming alive to a realisation, and that is no fund manager can provide you with consistently superior returns year after year. It is practically impossible for a fund manager to consistently deliver alpha returns – returns that continuously beat a chosen index. Index funds don’t attempt generation of alpha returns at all,” said Nilanjan Dey, director, Wishlist Capital.
This realisation has driven investors not only in India but also abroad to embrace index funds more and more, he said.
Dey also pointed out that numerous new investors are advised to begin their investing journey with index funds since these are transparent and affordable.
UTI pioneered Index Funds
Some of the prominent index funds in India are the UTI Nifty 50 Index Fund, HDFC Index Fund Nifty 50 Plan and HDFC Index S&P BSE Sensex Fund. Interestingly, UTI pioneered the move towards index funds with its Masterclass subbrand of funds in the 1990s.
Experts think that it is practically impossible for passive fund managers to fetch returns across market cycles.
“It is easy to forget about the concept of returns across market cycles, especially in this sustained bull run that India is witnessing. But it is axiomatic that the market will correct one day or the other and in such a season, providing returns will be challenging for active fund managers,” added Dey.
Index funds are a category of passive funds that track a basket of stocks in the same ratio as a chosen index. Index funds are less expensive to manage and invest. Some funds don’t have exit loads, while for some the load ranges between 0.25% and 0.5%, far lower than actively managed funds.
The number of index funds has gone up. Strategic indexes are being thought of. ETFs, too, are a type of passive fund that is quickly gaining popularity.
“Volatility, momentum and dividend yield indexes are set to become popular in the future,” predicted the Kolkata-based fund manager.
Index mutual funds are becoming extremely popular. These are particularly helpful for investors who are beginning their investment journey. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
