You might have read about index funds. I like researching on different type of mutual funds. So, here I thought to compile a list of Best Index funds in India. Some of the Top Performing Index funds, the investor's choice.
What is an Index?
Ever determined how Index gains or loose points. It all depends on the composition of Index.
An index is a composition of stocks with large market capitalisation. Change in the price and weightage of the stocks included in the index moves the points. With the change in market capitalisation of stocks, weightage of stock in the index is determined.
So, we will hear different investors sharing views on the Best Index Funds in India.
What are Index Funds?
In the same way, Index Funds are designed, in which portfolio of the fund is replicated of the tracking index with the same number and weight age of stocks. In India, Index funds are not so popular among investors due to its awareness and less returns in short term than other equity funds.
An investment into Index Funds is ideally done for long term investing. These funds are less volatile and a good alternative for risk-averse investors in equity mutual funds.
Index Funds: Things to know before investing
Index funds are passively managed funds meaning, the fund manager has no role in the selection of stocks and its performance.
These mutual funds have low expense ratio than other equity funds. This is because of the limited role of manager and less transaction cost.
Index funds are diversified in nature. As the index represent companies of different sectors, index funds also replicate the same composition.
The main factor in index funds is Tracking error. Simply stating, tracking error is the variation in return against the index they track. It happens due to inflow/outflow of funds, corporate actions, change in index constituents. Lower tracking error implies better management of the fund.
Best Index Funds in India: Top Performing List 2019
UTI Nifty Index Fund
Reliance Index Fund - Sensex Plan
LIC MF Index Fund - Sensex Plan
ICICI Pru Nifty Index Fund
Franklin India Index Fund -NSE Nifty Plan
SBI Nifty Index Fund
IDBI Nifty Index Fund
Reliance Index Fund - Nifty Plan
LIC MF Index Fund - Nifty
HDFC Index Fund- Nifty Plan
HDFC Index Fund - Sensex plan
Note: This is just a random list (not in any sequential order) based on my personal observations.
Details of the some of the Index funds are:
UTI Nifty Index Fund
UTI Nifty funds invest in securities of companies comprising of the Nifty 50 in the same weight age as they have in Nifty 50. The fund strives to minimise performance difference with Nifty 50 by keeping the tracking error to the minimum. The fund has been launched in March 2000, has well captured the rise of Nifty from 1400 level to now of 9200. The fund has given a annualised return 10.92% since inception.
Franklin India Index Fund - NSE Nifty Plan
The fund's objective is to invest in companies whose securities are included in the Nifty and subject to tracking errors, endeavouring to attain results commensurate with Nifty 50 Index under NSE Nifty Plan, and to provide returns that, before expenses, closely correspond to the total return of common stocks as represented by the S&P BSE Sensex under S&P BSE Sensex Plan. The investment in the fund is a moderately high risk.
SBI Nifty Index Fund
The fund invests in all the stocks comprising Nifty 50 Index in the same proportion as their weight age in the index. The fund launched in Feb 2002 has given a good return since inception. The fund has been able to keep the fund's tracking error low. It is moderately high-risk fund.
ICICI Prudential Nifty Index Fund
The scheme aims to closely track the performance of Nifty 50 Index by investing in almost all the stocks and in approximately the same weight age that they represent in the index. The fund is suitable for long-term wealth creation by replicating the S&P CNX Nifty index. The fund has been launched in Feb 2002 and has given good return since then.
IDBI Nifty Index Fund
The fund's objective is to invest in the stocks comprising the Nifty 50 Index in the same weights as these stocks represented in the index with the intent to replicate the performance of the Total Returns Index of S&P CNX Nifty. The fund is relatively new, launched in June 2015. The fund's tracking error is marginally high and has underperformed the index.
HDFC Index Fund - Nifty Plan
The scheme aims to generate returns that are commensurate with the performance of Nifty 50, subject to tracking errors. The fund offers only Growth option for investment in the fund. The annualized return of the fund since inception (July 2002) is quite impressive.
Reliance Index Fund - Nifty Plan
The objective of the scheme is to replicate the composition of the NIFTY, with a view to generate returns that are commensurate with the performance of the NIFTY, subject to tracking errors. The fund is consistent with a return since inception.
HDFC Index Fund - Sensex Plan
The objective of the scheme is to generate returns that are commensurate with the performance of S&P BSE Sensex, subject to tracking errors. The fund has AUM of Rs. 105 crore and was launched in July 2002, has given a annualized high return since inception.
This list of funds is arrived after comparing different funds from the same category. Only those funds are selected which have less tracking error and has performed consistently.
Best Index Funds: Conclusion
Investing in index funds is ideally best for the long term period of more than 5 years. As historical data shows, the returns of funds since inception which are more than 10 years have successfully given double digit return to investors and is par to returns of many actively managed equity funds.
The low cost, easy to track fund design are some of the unique features of and index fund. Due to less awareness among the public regarding Index Funds, the asset size remains small in most of the fund.
This post is for information purpose only. It should not be constituted as a professional advice in any regard. Investors are requested to do their own due diligence before investing into any of the above mentioned funds.
Do you wish to add any other popular and best performing Index funds? Feel free to add your opinions thereon.
Index funds or Index mutual funds are essentially mutual funds in which investments are made in stocks which track a particular index in the stock market.
An index like Nifty 50 or BSE 100. So in a way, they replicate underlying Index.
Differences Between Mutual Funds and Index Funds:
Index funds can generally come in two forms Index mutual funds or ETFs.
Index mutual funds are simply mutual fund schemes whose mandate is to invest in underlying index stocks. So, in a way it is a passive investment in underlying index.
Similar to Mutual funds, Index mutual funds have a daily NAV and can be brought or sold to the Fund house.
Mutual funds, on the other hand, depending on it stated scheme goals have greater flexibility in changing their portfolio. Hence, these are actively managed funds.
ETF ( Index funds) track one of the stock indices and are actively traded on the exchange. The price of ETFs hence varies dynamically. ETFs can be bought and sold on the exchange.
Mutual funds vs Index Funds: Conclusion
Actively managed equity portfolios tend to outperform passive index funds.
Outperformance can vary over time period and decreases with large time intervals.
So, for now it may be worth paying higher expense ratio for actively managed mutual funds. Since, actively managed mutual funds end up giving better returns.
Index funds are the type of mutual funds which invests in stocks of a market index. The composition of the portfolio is exactly the replica of an index in term of weight age and stocks. Hence, the return from index funds will be in the same line of the index. In this post, we look at various options on how to invest in Index Funds in India.
Features of Index Funds
Passive Investment- Index funds are passively managed funds meaning the fund manager has little role in the management of the fund and the role is limited to tracking of the composition of the fund.
Diversified Fund- As index funds capture the broad market exposure of an index. The fund portfolio represents the top companies by the market capitalization in different sectors.
Low Fees- Passive management feature of the fund helps in reducing the management fees and other overhead cost resulting in less expense ratio of the fund
Tracking error- The index funds are subject to tracking error. It means how much the return on the fund is deviating from the return of an index. It happens because of changes in constituents of the index, inflow/ outflow of funds etc.
Analysis of Index Funds
Analysis of index funds doesn't require deep digging of the fund's performance or portfolio composition. But there are few factors which affect the performance of the fund that should be looked upon for determination of the future performance of fund following points should be checked.
Sector weight age: It is important to know which sector has maximum influence on the fund and to what extent it is going to effect it. We should calculate the contribution of each sector of the fund by multiplying the sector weight by the sector return
Expense ratio: We should check for expense ratio for the fund. Index fund being passively managed should not have high expense ratio. Generally, it should be less than 1%
How the fund has performed over long term
We should check the tracking error of the fund. Tracking error means the difference between a portfolio's returns and the index. High tracking error means the fund is deviating from its portfolio and should be avoided
How to invest in Index Funds
There are multiple ways, an investor can opt for investing in Index Funds
Online Portals: With the advent of Robo-advisors, investment in mutual funds are more efficient and focussed towards achieving financial goals more effectively. It uses set of algorithms, data analysis in suggesting the right fund to investors. Some pros and cons of Online portals are:
Low fees with high-quality investment service
Covers broader area of investment service
Ease of use with interactive platform
Less personalized service
Based on algorithm and data analysis, it offers passive investment advice
These are Independent financial advisor (IFA), helps an investor with managing financial goals, investment needs, recommends mutual funds and finally helps to buy them. Investing through IFA is ideal for investors who don't have knowledge of financial planning. Some pros and cons of IFA are:
Effective recommendation on basis of investor profile
Doesn't offer Direct funds
Charge commission from customer on managing their financial needs
High chances among adviser about inadequate information about products
One can invest in mutual funds through the Demat account also. Your online portal or an agent can open an demat account as well for your investments. Some pros and cons are:
Convenient and paperless transaction
All units are held electronically
Easy nomination filings
Charges on investing through Demat account are high
All funds are not available
No financial advice to investors
One can invest in their pre-selected funds through official website of Asset management company. Pros and cons of investing directly through AMC are:
Access to direct plans of the funds
Convenient form of investing as it does not require paperwork and KYC is done digitally
Have to visit different website for different AMC
Have to depend on self for selecting funds and formulating financial goals
said in What are Index Funds: meaning, advantages, review, Taxation:
Index funds deliver returns more or less equal to the benchmark.
Returns from Index Funds cannot be more than returns of benchmark index. Its always quite less due to tracking error and expense ratio.
While actively managed mutual funds can give higher returns. If yes, which one is better overall, active funds or passive funds?
Its more of a personal choice to go for actively managed funds or index funds.
Like for me, I change my stance from actively managed funds to index funds, slowly over a period of time, by knowing more and more about them.