Top performing best Index funds to invest in 2018

best index funds

Best Index Funds to invest in 2018

Background

An index fund is a mutual fund where a portfolio is constructed to match the components of the market index. These funds purchase all stocks in similar proportion as there in particular index. This indicates that the fund is expected to perform in tandem with the index it is tracking. Index fund provides for broad marker exposure while keeping low operating expenses along with low portfolio turnover. Such funds adhere to certain rules such as efficient tax management or reducing tracking errors.

 Should you invest?

In developed markets, passive fund management has earned good name during 2016 over active management as the latter has struggled to beat passively managed funds during the year. However, if we take a close look at the emerging markets such as India, the fund has not been able to generate any demand.

While it is true that the fund manager of an actively managed fund seeks to outperform the benchmark through specific stock picking but generating alpha over benchmark is almost impossible year after year.

Given these funds are not actively managed, there is not much buying and selling of stocks to generate extra returns. This results in the fund incurring lower expenses than actively managed funds.

For investing in index fund, an investor has three options generally:

  • Fund that tracks the Sensex – Fund invests majorly in stocks which form part of Sensex – 30 stocks
  • Fund that tracks the Nifty – Fund invests majorly in stocks which form part of Nifty– 50 stocks
  • Index plus fund – Fund invests a part into a particular index while rest is actively managed

The success of the index fund is measured in how close it is able to replicate the performance of the underlying index it is copying. Yeah, and there is a term for that – tracking error. The lower the tracking error, the better the fund is.

An investor should look to invest in index funds if they do not believe in fund managers as they are humans after all and some picks may go bad. Secondly, an investor should invest in index fund provided he/she seeks to play a low-cost strategy. We believe cost is the only thing that can be controlled by way of index fund. Lastly, an investor should also invest in index fund if he/she seeks to remain fully invested in equity, at all times.

WealthTrust recommendation

We recommend the following index funds that have successfully managed to replicate the performance of index to the closest degree. Please read further to find the fund review:

HDFC Index – Sensex Plan

Best index fundsReview:
The scheme seeks to generate returns that are commensurate with the performance of S&P BSE Sensex, subject to tracking errors. The product is suitable for investors who are seeking to generate returns that are commensurate with the performance of the Sensex, subject to tracking errors over the long term. It is also suitable for investors who seek to invest in equity securities covered by the Sensex.

While the fund has generated marginally lower returns as compared to category average, it has managed to generate considerable absolute returns over the multi-trailing period. The fund returned around 25.54% over the one-year period.

The fund comprises of investments in equity securities that are part of Sensex that comprises of 30 stocks in general. 100% of the portfolio is invested in large-cap stocks with only a fraction invested in cash and cash equivalents. Sectorally, Financial services account for over 1/3rd of the portfolio while sectors that are domestically oriented accounts for higher share as compared to export-oriented sectors such as Information Technology and Healthcare.

The fund has low standard deviation amongst its peer at 13.26% against the category average of 13.82%. This indicates that the fund has low volatility and thereby lower risk when compared to peers. The fund’s beta is close to 1 that is 0.96 indicating that it is successful in replicating Sensex performance over the long-term.

The fund is ranked 3 by CRISIL in Index category as of September 2017 with no change in ranking quarter-on-quarter. The total asset under management as of November 31, 2017, is Rs 1 billion.

Lastly, the fund manager Krishan Kumar Daga is managing the fund since October 2015. Prior to joining HDFC AMC, he has worked with Reliance Mutual Fund, Reliance Capital Ltd., Deutsche Securities, B&K Securities, Brics Securities, JP Morgan Securities and HSBC Securities. He holds a BCom (H) degree.

ICICI Prudential Nifty Next 50 Index Plan

Review:

The scheme seeks to closely track the performance of Nifty 50 Index by investing in almost all the stocks and in approximately the same weight that they represent in the index. While the fund has generated marginally lower returns as compared to category average, it has managed to generate considerable absolute returns over the multi-trailing period. The fund returned around 24.87% over the one-year period.

The fund comprises of investments in equity securities that are part of Nifty – 50 Index. 100% of the portfolio is invested in large-cap stocks with only a fraction invested in cash and cash equivalents. Sectorally, Financial services account for over 1/3rd of the portfolio while sectors such as consumers and energy accounting for 19% and 11% respectively.

The fund has low standard deviation amongst its peer at 13.48% against the category average of 13.82%. This indicates that the fund has low volatility and thereby lower risk when compared to peers. The fund’s beta is close to 1 that is 0.98 indicating that it is successful in replicating Nifty performance over the long-term.

The total asset under management as of November 31, 2017, is Rs 2.9 billion.

Lastly, the fund manager Kayzad Eghlim is managing the fund since August 2009. Prior to joining ICICI Prudential AMC, he has worked with IDFC Investment Advisors Ltd., Prime Securities and Canbank Mutual Fund. He holds a BCom (H) degree and an M.Com degree.

 

Though index funds have been very popular in the west, in Indian context they deliver comparatively low returns than actively managed funds. However, if one wishes just to invest in the market (i.e. Sensex or Nifty), then they can go for an index fund.

Invest in the above mentioned Best Index funds on WealthTrust app.

New to Mutual Funds? Learn more about basics of mutual funds.

Visit our website to know more about WealthTrust. Do read our blogs on Mutual funds.

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