2. WHAT IS INDEX FUND?
Index fund is a mutual fund or exchange traded fund that aims
to replicate the movements of an index of a specific financial
market. It follows a passive investing strategy called
indexing.
For example, it involves tracking an index like the sensex or
the nifty and builds a portfolio with the same stock and with
the same proportions as the index. The funds make no effort
to beat the index and in fact it tries to earn the same return.
3. INDEX FUND IN INDIAN CONTEXT
• In the Indian market scenario index funds may not be the
best option. The basic principle of indexing is - the more the
number of stocks comprising an index the better is the
diversification and price discovery. Indian indices like the
Sensex (30) and the Nifty (50) cover a relatively small
number of stocks and ignore many opportunities in the mid-
cap sector.
• Unlike the capital markets in developed countries, Indian
markets haven't been thoroughly researched and there is
enormous scope to beat the market by sound research.
4. ADVANTAGES
As per efficient market concepts index funds provide
optimum return in the long run.
An index fund does not have to pay for expensive analysts
and frequent trading.
Index fund has a broad index which is less volatile than the
specific stock or sectors, thereby lessening risks for
investors.
Index funds are tax friendly so a substantial tax savings can
be earned.
5. DISADVANTAGES
Possible tracking error from index
Since index funds aim to match market returns, both
under- and over-performance compared to the market is
considered a "tracking error“ by holding too much cash.
Cannot outperform the target index
Index fund seeks to match rather than outperform the
target index. Therefore, a good index fund with low tracking
error will not generally outperform the index, but rather
produces a rate of return similar to the index minus fund
costs.
Index composition changes reduce return
Whenever an index changes, the fund is faced with the
prospect of selling all the stock that has been removed from
the index, and purchasing the stock that was added to the
index.
6. HOW ARE INDEX FUNDS TRADED?
While trading in index funds offers broad
market exposure, it involves low operating
expenses. The reason for low expense ratio
is because most index funds are not actively
managed. This type of model is called
passive fund management.
Index funds are based on a theory known as
the efficient market hypothesis (EFH). This
theory states that as stocks are valued with
accuracy, it is not possible to beat the market
easily.
7. FEATURES OF PLANS
Nifty Plan:
To generate returns that are commensurate with the
performance of the Nifty, subject to tracking errors.
SENSEX Plan:
To generate returns that are commensurate with the
performance of the SENSEX, subject to tracking errors.
SENSEX Plus Plan:
To invest 80 to 90% of the net assets of the Plan in
companies whose securities are included in SENSEX and
between 10% & 20% of the net assets in companies.
8. INITIAL ISSUE EXPENSES
The initial issue expenses scheme will be borne by the AMC.
In respect of each purchase / switch - in of Units, upto and
including Rs. 5 lakh in value, an Exit Load of 1% is payable if
Units are redeemed / switched-out within 1 year from the date
of allotment.
In respect of each purchase / switch - in of Units, greater
than Rs. 5 lakh in value, no Exit Load shall be payable.
These are collected from the HDFC bank.
9. LIQUIDITY OF THE SCHEME
The Scheme will offer for Sale and Repurchase
Units at NAV based prices on every Business
Day on an ongoing basis, commencing not later
than 30 days from the closure of Initial Offer
Period. Under normal circumstances, the Mutual
Fund will Endeavour to dispatch the Redemption
Cheque / draft within 3 Business Days from the
acceptance of the Redemption request.
10. INITIAL OFFER PRICE OF THE SCHEME
Rs. l per Unit for cash at par (The face value
of the Units will be based on the closing
value of the respective indices as at the Date
of Allotment in the proportion : 100 Units =
Value of the Index)
Target Amount
Index Fund seeks to raise minimum
subscription amount of Rs. 1 lakh under each
Plan
11. ASSETS AND DETERMINATION OF SCHEME
Once a Stock Exchange has been selected for valuation of
a particular security reasons for change of the exchange
shall be recorded in writing by the AMC.
When a security is not traded on any stock exchange on a
particular valuation day, the value at which it was traded on
the selected stock exchange, on the earliest previous day
such date is not more then 30 days prior to valuation date.
When a debt security is not traded on any stock exchange
on a particular valuation day, the value at which it was
traded on the principal stock exchange or any other stock
exchange, on the earliest previous day such date is not
more than 15 days prior to valuation date.
12. PIE CHART SHOWING MARKET SHARE
Market Share
Shares Mutual Fund Bonds Index Fund ULIPS
11%
6% 22%
36% 25%
13. FREQUENTLY ASKED QUESTIONS BY PEOPLE
What is an index fund
what's the difference between an index fund
and equity fund?
How do I start placing money in an index
fund?
How easy is it to start an index fund?
If not index fund then what are they
interested in?
14. Index fund: Investment fund designed to
match the returns on a stock market index.
Mutual fund whose portfolio matches an
index.
These types of funds have a certain investing
philosophy they have to follow that can be
found in the funds prospectus. They are also
typically actively managed which means that
a fund manager or managers actively buy
and sell inside the fund to try to beat the
performance of the indexes
15. . Buy shares in an index fund. (ex. Vanguard 500
Index Fund, tracks S&P 500)2. Buy shares in a ETF.
(ex SPY, tracks S&P 500)In practice, these two ways
are very similar. The difference is that index funds
usually have no transaction costs for
buying/selling, but can only be bought through certain
authorized brokers and might charge a fee if you
have a low account balance. ETFs are traded on the
stock market and can be bought through *any*
brokerage (ex. etrade), but you will almost certainly
be charged a fee for buying/selling.
First step would be to register with the SEC as an
investment company. As an investment company you
would be required to meet specific reporting and
information guidelines mandated by the
16. QUESTIONS ASKED TO:
NAME OCCUPATION INVESTMENT
R.K.Neogi Service Index
Prosenjit Sen Engineer Equity
Sumit Agarwal Business Mutual fund
Prasant Khanna Business Bond
Sumanta Ray Teacher Equity
Ramakant Jha Student Equity
S.N.Singh Doctor Bond
Ramesh Mehra Business Index
Sunil Prasad Student Equity
R.G.Singh student Bond
17. LEARNING
Understanding different investment schemes.
Knowing in details about index funding.
Gaining practical knowledge about share market.
Contribution of banking sector in other financial sector.
