Friday, September 16, 2016

Index Funds of Top 10 Mutual Funds

Meaning:
Index Funds are passive mutual funds that track a popular stock index. Diversified index funds are recommended for investors who cannot afford to learn and invest on their own.

They are called passive because the fund manager need not actively manage the fund by way of frequent purchase and sale of stocks. Stock indices do not undergo frequent changes. Index funds that track popular indices, once constituted by buying shares of that constitute the index in exact proportion, does not require any change unless there is a change in the composition of the index, which is a relatively infrequent event.

Diversity contributes safety based on the principle that when we have a large basket of stocks (about 500 stocks) 80% perform average, 10% perform brilliantly and another 10% will prove to be total duds; overall such diversified portfolio will give reasonable safety.

Example:
We present here a list of index funds offered by ‘The Top Ten Mutual Funds of India’ ranked by the assets under management:

Name of Fund
Index Fund Available?

Name of Index
Number of Stocks
Diversified?
ICICI Prudential Mutual Fund 
YES
ICICI Prudential Nifty Next 50 Index Fund
CNX S&P Nifty 
50
POOR
HDFC Mutual Fund 
YES
HDFC TOP 200 FUND
BSE 200
200
REASONABLE
Reliance Mutual Fund 
YES
RELIANCE TOP 200 FUND
BSE 200
200
REASONABLE
Birla Sun Life Mutual Fund 
YES
BSL Top 100 Fund
TOP 100 By Market Capitalisation
100
SPARCE
SBI Mutual Fund 
YES
SBI NIFTY INDEX FUND
CNX S&P Nifty 
50
POOR
UTI Mutual Fund
YES
UTI - Nifty Index Fund
CNX S&P Nifty 
50
POOR
Franklin Templeton Mutual Fund 
YES
Franklin India Index Fund - NSE Nifty Plan
CNX S&P Nifty 
50
POOR
Kotak Mahindra Mutual Fund 
YES
Kotak Sensex ETF Fund
S&P BSE Sensex
30
POOR
IDFC Mutual Fund 
YES
IDFC Nifty Fund
CNX S&P Nifty 
50
POOR
DSP BlackRock Mutual Fund 
YES
Top 100 Equity Fund
S&P BSE 100
100
SPARCE
This list is not exhaustive. Funds may have other index schemes that may be more diversified.

Conclusion:

Even though the Bombay Stock Exchange has a well diversified, ‘S&P BSE 500 Index’, we are unable to locate an index funds tracking this index. Perhaps the reason is to cater to customer perception that top index companies are safer and will provide better returns. However, in reality it is a only a fund that tracks a well diversified index that ensures safety and growth.

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