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Magnum Index Fund

SBI Mutual has launched Magnum Index Fund, the eighth Index tracker. The other include – Franklin India Index, Franklin India Index Tax Fund, IDBI PRINCIPAL Index, Pioneer ITI Index – Nifty, Pioneer ITI Index – Sensex, UTI Master Index and UTI Nifty Index Fund.

Magnum Index Fund
  Minimum Investment Rs 5000
  Subsequent Investment Rs 1000
  Initial Issue Close 31-Dec-01
  Open-ending 14-Jan-02
  Entry Load 1 per cent
  Exit Load Nil
  Estimated Annual Expense 1.55 per cent

    Index fund passively track the benchmark index and invests in only those companies, which make up the index and the portfolio is weighted in the same proportion as in the benchmark index. Index funds are managed to mirror the performance of the benchmark index and do not attempt to outperform it. However, there might be instances of minor variances in the returns of the index fund vis-à-vis the benchmark index. Explained as tracking error, under-performance can arise due to the costs involved in managing an index fund. And higher the fund expenses, greater would be the divergence. And inflows and outflows into the fund are also disruptive, impacting the returns from the fund.

Indexing pitfalls: As an index fund investor, you choose to forgo the hope and joy of beating the market. You settle for an average return. The other strong point against index funds in India is that Indexing works well in an efficient market. And Indian stock market is still considered inefficient. Hence, an active fund manager is likely to beat the market till our markets become efficient.

Indexing Benefits: Diversified equity funds often behave in an in-disciplined manner in managing their portfolio -- with big stock and sector bets. With an Index fund, one can be assured of owning a well-diversified portfolio all the time. Besides, the Indian market is getting efficient and gaining maturity with growing institutional participation. Hence, adding value with active fund management will increasingly get difficult. With an index fund you will atleast earn returns in line with the market.