What is the index fund in India and how do you assess the index fund tracking error?A Story by Quantum MFLet’s understand the index fund in India and how should you evaluate the index funds tracking error while selecting an index mutual fund.Index fund in
India is a passive mutual fund that aims to achieve capital appreciation by
imitating or replicating an underlying index. The objective of an index fund or
an index ETF is to passively replicate the index in terms of its portfolio
composition. A fund manager
of an index fund has to keep track of any changes in the weightage or list of
stocks. He/she does not have a say in the portfolio composition and has to
imitate the performance of the index. Index funds are
suitable to those who do not require extensive tracking and anticipate
performance that is in line with the market returns
can look at an Index Fund. The majority of
the index funds returns equal to or slightly lesser than the benchmark index. Index Funds tracking error is a measure of how much
the fund performance has deviated from the benchmark index. Index mutual funds
disclose their tracking error in the factsheet. The fund manager has to create
a portfolio that mirrors the index performance as closely as possible. Tracking
error occurs in both scenarios; i.e. outperforming the index and
underperforming the index. When selecting a mutual fund, you need to evaluate the index fund tracking error by looking at the following:
Investors
prefer index fundsto avoid the fund manager’s involvement and the higher
expense ratio in the case of an active mutual fund. However, investors of the
Index Fund should keep in mind that portfolio concentration is high as compared
to an actively managed mutual fund, which has a mandate to not exceed the cap
of 10% allocation in a stock. As of May 24, 2021, the top three Sensex stocks
had a total weightage of 31.57 percent. An actively managed fund, on the other
hand, won’t have such a portfolio concentration risk. Disclaimer: The views expressed here in this Article /
Video are for general information and reading purpose only and do not
constitute any guidelines and recommendations on any course of action to be
followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing /
offering / communicating any indicative yield on investments made in the
scheme(s). The views are not meant to serve as a professional guide /
investment advice / intended to be an offer or solicitation for the purchase or
sale of any financial product or instrument or mutual fund units for the
reader. The Article / Video has been prepared on the basis of publicly
available information, internally developed data and other sources believed to
be reliable. Whilst no action has been solicited based upon the information
provided herein, due care has been taken to ensure that the facts are accurate
and views given are fair and reasonable as on date. Readers of the Article /
Video should rely on information/data arising out of their own investigations
and advised to seek independent professional advice and arrive at an informed
decision before making any investments. None of the Quantum Advisors, Quantum
AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative
shall be liable for any direct, indirect, special, incidental, consequential,
punitive or exemplary losses or damages including lost profits arising in any
way on account of any action taken basis the data / information / views
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to market risks, read all scheme related documents carefully. © 2021 Quantum MF |
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Added on June 22, 2021 Last Updated on June 22, 2021 Tags: Index Funds India, index fund India returns AuthorQuantum MFmumbai, maharashtra, IndiaAboutQuantum Mutual Fund has over 14 years of experience into mutual funds and puts the needs of investors like you first. Invest in different types of schemes & start an SIP with Quantum Mutual Funds toda.. more..Writing
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