Aditya Birla Sun Life Mutual Fund

How well do you know about Index Funds?

How well do you know about Index Funds?

  • Q1. Which of the following is NOT a feature of an equity index fund ?
    • Wrong!

      An in-house fund manager decides which stocks to invest in

      Perfect! You really understand how passive mutual funds work. That is the best part of an index fund. One has to just copy / mirror the index in the portfolio. No fund manager has to research and bother as to what to include or not.

      You missed it! Don’t blame you, index investing is a recent phenomenon and few investors understand it. With index funds one has to just copy / mirror the index in the portfolio. No fund manager has to research and bother as to what to include or not. That is the best part of an index fund.

      You missed it! Don’t blame you, index investing is a recent phenomenon and few investors understand it. With index funds one has to just copy / mirror the index in the portfolio. No fund manager has to research and bother as to what to include or not. That is the best part of an index fund.

  • Q2. An investor needs a demat account to buy / sell an ETF or Exchange Traded Fund ?
    • Wrong!

      True

      That’s right! Actually, the word just gives it away – Exchange traded fund. ETFs work just like stocks. So, you do need a demat account to buy and sell them.

      Hard luck! You see, the words just give it away – Exchange traded fund, which means they are listed on a stock exchange. So, you do need a demat account to buy and sell them.

  • Q3. The difference between an index fund and Exchange Traded Fund (ETF) is
    • Wrong!

      All of the above

      Don’t worry, you got at least one right. Actually, all of the above are the correct differences between index funds and ETF. You certainly need to read up more on index funds and ETFs.

      Don’t worry, you got at least one right. Actually, all of the above are the correct differences between index funds and ETF. You certainly need to read up more on index funds and ETFs.

      Don’t worry, you got at least one right. Actually, all of the above are the correct differences between index funds and ETF. You certainly need to read up more on index funds and ETFs.

      Hello master! You are a total believe in indexing, right! All of the above are the correct differences between index funds and ETF.

  • Q4. An index fund based on BSE 500 or Nifty 500 will qualify in which of the following categories ?
    • Wrong!

      Multi cap

      Time to brush up your basics! As a trivia, the Top 500 stocks represent around 94% of the value of all stocks (large, mid and small) listed on the respective exchanges – BSE and NSE. So, an index fund that mirrors the BSE 500 or Nifty 500 is bound to a multicap fund.

      Time to brush up your basics! As a trivia, the Top 500 stocks represent around 94% of the value of all stocks (large, mid and small) listed on the respective exchanges – BSE and NSE. So, an index fund that mirrors the BSE 500 or Nifty 500 is bound to a multicap fund.

      Time to brush up your basics! As a trivia, the Top 500 stocks represent around 94% of the value of all stocks (large, mid and small) listed on the respective exchanges – BSE and NSE. So, an index fund that mirrors the BSE 500 or Nifty 500 is bound to a multicap fund.

      That was easy! As a trivia, the Top 500 stocks represent around 94% of the value of all stocks (large, mid and small) listed on the respective exchanges – BSE and NSE. So, an index fund that mirrors the BSE 500 or Nifty 500 is bound to a multicap fund.

  • Q5. If you have to buy an index fund with the largest bluechip companies in India, which of the following indices should it be based on
    • Wrong!

      BSE Sensex

      Super easy! Sensex or the Sensitive index comprises of the 30 largest bluechips of India commanding over 50% of the market size. So, if large cap is your zone, an index fund based on Sensex or Nifty 50 can be your calling.

      How could you miss this! Sensex or the Sensitive index comprises of the 30 largest bluechips of India commanding over 50% of the market size.So, if large cap is your zone, an index fund based on Sensex or Nifty 50 can be your calling.

      How could you miss this! Sensex or the Sensitive index comprises of the 30 largest bluechips of India commanding over 50% of the market size.So, if large cap is your zone, an index fund based on Sensex or Nifty 50 can be your calling.

      How could you miss this! Sensex or the Sensitive index comprises of the 30 largest bluechips of India commanding over 50% of the market size.So, if large cap is your zone, an index fund based on Sensex or Nifty 50 can be your calling.

  • Q6. One of the main reasons for the difference between the returns of an index fund and its benchmark is
    • Wrong!

      Fund Expenses

      This could be tricky! No worries though. Here’s the learning for you. Since the fund incurs expenses to trade, rebalance, customer service, etc. that itself becomes a main reason for difference between the returns of the benchmark and the index fund. No. of stocks in both the index fund and benchmark are similar. And since the index fund just mirrors the index, you could theoretically pick any index fund.

      We are talking passive investing but you are not a passive learner. Awesome! Since the fund incurs expenses to trade, rebalance, customer service, etc. that itself becomes a main reason for difference between the returns of the benchmark and the index fund. No. of stocks in both the index fund and benchmark are similar. And since the index fund just mirrors the index, you could theoretically pick any index.

      This could be tricky! No worries though. Here’s the learning for you. Since the fund incurs expenses to trade, rebalance, customer service, etc. that itself becomes a main reason for difference between the returns of the benchmark and the index fund. No. of stocks in both the index fund and benchmark are similar. And since the index fund just mirrors the index, you could theoretically pick any index fund.

      This could be tricky! No worries though. Here’s the learning for you. Since the fund incurs expenses to trade, rebalance, customer service, etc. that itself becomes a main reason for difference between the returns of the benchmark and the index fund. No. of stocks in both the index fund and benchmark are similar. And since the index fund just mirrors the index, you could theoretically pick any index fund.

  • Q7. Tracking error is a measure of how closely an index fund follows its benchmark index
    • Wrong!

      True

      That’s right! Tracking error does indeed measure the variation in movements of the benchmark index and the index fund. Together with expense ratio, this becomes a key criterion in selection of index funds.

      This must have sounded technical! Tracking error does indeed measure the variation in movements of the benchmark index and the index fund. Together with expense ratio, this becomes a key criteria in selection of index funds.

  • Q8. The Nifty Next 50 index comprises of
    • Wrong!

      The 51st to 100th companies ranked as per predefined criteria

      You are definitely new to index funds. When the companies listed on the exchange are ranked using a mix of various criteria and a list is made, the top 50 are known as the Nifty 50. The next 50 are known as the Nifty Next 50. In the past, this was also known as the Nifty Junior. You can find out the criteria applied to derive this index companies on Nifty Indices official website.

      Bingo! When the companies listed on the exchange are ranked using a mix of various criteria and a list is made, the top 50 are known as the Nifty 50. The next 50 are known as the Nifty Next 50. In the past, this was also known as the Nifty Junior. You can find out the criteria applied to derive this index companies on Nifty Indices official website.

      You are definitely new to index funds. When the companies listed on the exchange are ranked using a mix of various criteria and a list is made, the top 50 are known as the Nifty 50. The next 50 are known as the Nifty Next 50. In the past, this was also known as the Nifty Junior. You can find out the criteria applied to derive this index companies on Nifty Indices official website.

      You are definitely new to index funds. When the companies listed on the exchange are ranked using a mix of various criteria and a list is made, the top 50 are known as the Nifty 50. The next 50 are known as the Nifty Next 50. In the past, this was also known as the Nifty Junior. You can find out the criteria applied to derive this index companies on Nifty Indices official website.

  • Q9. Which of the following investors can invest in index funds?
    • Wrong!

      All of the above

      At least, you have 1 reason to invest in an index fund, if you do. Actually, all are true. Index funds are preferred by investors for all of the reasons mentioned. Why bother about alpha or extra returns? Just take the market and focus on lower expenses and that will sail you through.

      At least, you have 1 reason to invest in an index fund, if you do. Actually, all are true. Index funds are preferred by investors for all of the reasons mentioned. Why bother about alpha or extra returns? Just take the market and focus on lower expenses and that will sail you through.

      At least, you have 1 reason to invest in an index fund, if you do. Actually, all are true. Index funds are preferred by investors for all of the reasons mentioned. Why bother about alpha or extra returns? Just take the market and focus on lower expenses and that will sail you through.

      You got the bull’s eye. Index funds are preferred by investors for all of the reasons mentioned. Why bother about alpha or extra returns? Just take the market and focus on lower expenses and that will sail you through.

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