It probably won't get more diversified than this! If you want to spread a mere Rs 5000 across 50 blu
15-Aug-2000 •Research Desk
It probably won't get more diversified than this! If you want to spread a mere Rs 5000 across 50 bluechip stocks, 23 sectors and a market capitalisation of Rs 3.5 lakh crore, IDBI Index I 'Nit should be your choice. An index fund, IDBI 'Index I 'Nit replicates the 50-stock S&P CNX Nifty. And, since the fund is passively managed, it does not attempt to beat its benchmark but merely tracks it. By its very charter, Index I 'Nit has a diversified portfolio, which should normally make it less volatile than other funds in the diversified equity category. For instance, in the six months ended June 30, 2000, the fund declined by a mere 1.08 per cent while the category of diversified equity funds has lost an average 12.38 per cent. Diversification apart, investments in 50 blue-chip stocks impart high liquidity to the fund. However, what might startle you is the annualised return from the fund, which is only 2.41 per cent against a 10.90 per cent gain in Nifty. This is attributed to a gradual deployment of money by IDBI Index 'I Nit – clearly, the fund cannot invest the mobilised amount in a single day! Worse, the investments by the fund coincided with a sharp spurt in Nifty, which gained 13 per cent in less than a fortnight in July 1999. Since index funds do not have active portfolio management, they have lower expense charges than their peers. IDBI Index I 'Nit is no different with an expense ratio of only 0.91 per cent as on March 31, 2000. And like other index funds, this fund also has a tracking error, which largely arises due to annual expenses. So, if you are looking for a compulsorily diversified portfolio which reduces the inherent volatility in the market, invest in IDBI Index I 'Nit. However, this fund is not for you if you are looking for sterling returns.