Betting On The Index
UTI has launched India's first index fund using Nifty as the benchmark. A look at the issues involved in running an index fund.
About three weeks back, the Unit Trust of India (UTI) launched its offshore open-ended fund, India Access. With funds of $30 million, Access India is also the first index fund managed in India. Though the mutual fund sector is excited about the new concept, almost no one is yet sure exactly how UTI plans to run this fund. There are dozens of ways to build an index fund, and numerous issues involved with each option. To understand it better, let's start with specifically the kind of index fund UTI has started.
First of all, the index itself on which this fund is based. UTI has chosen the NSE 50, not the Sensex, not the BSE National Index or even the Crisil 500. Now is the Nifty a good index to build a fund around? The answer depends on two factors. One, what kind of returns are you looking for and what kind of risk are you ready to bear. If you are looking for stability, you choose one kind of index. If you look for high returns even at the cost of high risk, you choose another kind. However, unlike in the advanced countries, all the major indices in India try to reflect the macro-economic conditions of the country rather than any specific kind of scrip class. And that is why, all the major indices