Not too long ago in August 2004, the markets were grappling with the 5,000 points mark; since then the equity markets have surged rapidly and the BSE Sensex is now precariously close to the 6,000 points mark. In such a scenario, it would be interesting to study the performance of index funds. Index funds track major indices like the BSE Sensex and have their fortunes closely linked to the indices performance.
Index Funds: Should you get invested?
| Index Funds |
NAV (Rs) |
3-Mth |
1-Yr |
Incep. |
| TATA INDEX FUND SENSEX B |
18.48 |
13.80% |
20.71% |
45.74% |
| PRU ICICI INDEX |
15.81 |
13.44% |
14.78% |
19.18% |
| UTI-INDEX ADVANTAGE NIFTY |
11.17 |
13.41% |
13.44% |
17.53% |
| UTI NIFTY INDEX |
11.75 |
13.37% |
17.71% |
5.11% |
| BENCHMARK NIFTY |
189.19 |
13.35% |
18.21% |
20.68% |
| TATA INDEX FUND NIFTY B |
17.73 |
13.20% |
16.59% |
41.89% |
| MAGNUM INDEX FUND |
17.20 |
13.12% |
16.84% |
23.06% |
| UTI MASTER INDEX |
18.49 |
13.03% |
19.07% |
9.57% |
| HDFC INDEX (SENSEX) |
56.42 |
12.97% |
15.18% |
27.03% |
| BIRLA INDEX FUND B |
19.24 |
12.91% |
16.18% |
36.05% |
(Source: Credence Analytics. NAV data as on Nov 8, 2004. Growth over 1-Yr is compounded annualised)
Over a 3-Mth period, index funds have pitched in smart performances; true to their character, these funds aptly mirror the strong growth witnessed in the equity markets. But even the performances of top performers from the index funds segment i.e. Tata Index Fund (13.80%) and PruICICI Index (13.44%) may pale when compared to those of diversified equity funds over the same period.
Diversified Equity Funds: Strong performances!
| Diversified Equity Funds |
NAV (Rs) |
3-Mth |
1-Yr |
Incep. |
| DISCOVERY STOCK |
7.57 |
22.10% |
15.62% |
-2.59% |
| PRU ICICI DYNAMIC PLAN |
22.15 |
21.53% |
19.26% |
48.67% |
| CHOLA MID CAP |
12.27 |
21.12% |
- |
17.77% |
| TATA GROWTH FUND BONUS |
13.28 |
20.20% |
- |
6.60% |
| MAGNUM GLOBAL |
15.29 |
19.83% |
63.97% |
8.85% |
| UTI - DYNAMIC EQUITY |
18.14 |
19.74% |
47.40% |
71.98% |
| KOTAK GLOBAL INDIA SCHEME |
12.34 |
19.54% |
- |
25.35% |
| TAURUS STARSHARE |
14.43 |
19.35% |
36.03% |
4.46% |
| SUNDARAM SELECT MIDCAP |
30.23 |
18.36% |
42.76% |
63.28% |
| BOINANZA EXCL |
15.28 |
18.36% |
4.03% |
9.98% |
(Source: Credence Analytics. NAV data as on Nov 8, 2004. Growth over 1-Yr is compounded annualised)
Investors should realise that such a comparison is not fair because a diversified equity has the liberty to invest in stocks which are in flavour at the moment, unlike an index fund, whose universe is restricted to that of its benchmark index.
Index funds are also equipped to offer some distinct advantages to investors, for example when markets crash, index funds move with the markets and offer investors better protection vis-à-vis their diversified equity fund counterparts. While delivering returns is vital, the importance of capital preservation cannot be undermined by investors.
Index funds also score on the expenses parameter. They typically have lower management fees and trading expenses, which in turn translates into better returns for investors.
Finally index funds can help you build a diversified portfolio. Even within the equity funds segment investing in a variety of funds is always a smart move. Index funds offer the opportunity to invest in index stocks; conventional diversified equity funds may or may not give investors the same chance.
Index funds, despite their inability to match upto diversified equity funds in terms of performance can offer investors a fair degree of utility. Investors should consider holding atleast a portion of their investible surplus in this moderate risk-return investment proposition.
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