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.

How to Choose the Right Mutual Fund to Invest?

Choosing a mutual fund is very crucial and while selecting a mutual fund following factors shall be kept in mind:

Vintage: 

For how long the fund has been in business - the longer the better, for in general more one is engaged in a particular trade more intimately one knows that business. UTI Mutual Fund is the pioneer in India.

Nature of Ownership: 

I will prefer and advise government owned or public sector (PSU) mutual funds for the following two reasons:

Though slow and inefficient in providing good customer service, generally PSUs do not take  customers on a ride through the fine print in the contracts.

In case the organisation gets into financial troubles, the government will step in with the rescue-act.

Size: 

Size does matter. Bigger the size safer it is. One can take the assets under management (AUM) as the parameter to measure the size. India’s Top Ten Mutual Funds command over 80% of the total assets under management.

Growth Funds: 

Funds fall under two categories namely income and growth funds. While income funds distribute regular dividends (some times obnoxiously out of capital instead of profits) growth funds reinvest the profits. For long term wealth creation, growth funds are preferable.

Diversified Index Funds: 

Well diversified index funds are preferable for the following advantages:

1. Diversity produces safety
2. Index funds are passive and therefore involve lower fund administration cost

Conclusion:

In conclusion careful consideration is required while choosing the right mutual fund to invest in for the purpose of attaining financial freedom and wealth creation.

Related Links:

List of Top Ten Mutual Funds in India by Assets Under Mangement

Why My Friends Lost or Earned Only Meger Returns from Investments in Both Stocks and Mutual Funds?

How Frequent Changes to Mutual Fund Portfolio Affect Investor Interest?

Why People Entrust Their Funds With Mutual Funds?

Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?

What Is The Difference Between Dividend and Growth Fund. Which Is Better?

What are the rules of thumb for investing a lump sum amount into a mutual fund?

Can we use money from mutual fund for home loan repayment?

A Few Mutual Fund Examples