Index Funds are those having portfolio that closely mirror that of the underlying Market Index. For Example, BSE Sensex is a popular equity market index. A fund that closely follows this index will have exactly the same scrips in the same ratio in its portfolio as that of the index. The Portfolio Manger does not do great research to identify the scrip that way. The composition of the portfolio undergo change when he gets dividend/bonus/rights from these companies. Tehn he does necessary purchases/sales to maintain the proportion as that of the Index. The Portfolio manager also does purchases/sales when he faces redemption/sales of fresh units for maintaning the portfolio proprtion. This is based on the Efficient Market Hypothesis that Nobody can Beat the Market. they are passively managed as compared to their equity counterpoarts in the industry.
Almost all MFs have Index Funds. They are common man's investment vehicle; One can easily compare with the Index and make sure whether the fund manager has performed or not.
Look at Business Manorama dated January 22, 2007 for the related Malayalam article
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