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Aditya Birla Sun Life AMC Limited

Aditya Birla Sun Life AMC Limited

    • Index Funds

    Debt Mutual Funds

    Today, with over 7,000 companies listed on the stock exchange as well as thousands of issuers with bond offerings, choices for investors are in abundance. These listings are further sub-categorized based on market caps, themes, risk profiles, credit ratings etc. With varied and constantly changing risk profiles, growth prospects and valuations, investors may find it challenging to select a portfolio of securities that match their financial goals. In fact, investors may be wary about taking on this stock selection risk at all. To address this need, AMCs offer a passive investing model in the form of index funds which seek to mitigate this active stock selection risk

    Index funds can be of different types – primarily equity based and debt based. Equity based can be categorised on market caps, themes and sectors, strategy etc. Index funds thus offer the ‘diversification at low minimums’ benefit of mutual funds with the benefit of lower active stock selection and lower costs. Let’s understand the basics

     
    What is an Index fund?

    An index fund is a type of mutual fund whose objective is to track and mimic the composition and performance of an underlying index of securities, at as low tracking error as possible. An index is a basket of securities – can be stocks or debt instruments, that represent a specific theme or category of the market.
    Different indices are drawn up by the stock exchanges from time to time to represent different market segments and to serve as benchmarks for several financial analysis. For example – the NIFTY 50 Index represents the top large cap companies on the market, on the other hand the NIFTY Small Cap 50 Index represents the top 50 companies in the small cap segment. An index fund follows a passive investing strategy so as to provide investors with returns that align with returns earned by the underlying index being tracked.

    How do index funds work?

    Index funds follow a passive investing model. The fund manager invests the fund’s corpus in the same securities and in the same proportion as are found in the underlying index.
    Indices are re-balanced and re-constituted periodically. In line with this the fund manager also re-aligns the fund’s portfolio composition by selling outgoing securities and buying incoming securities of the index.
    Through this strategy, index funds look to earn returns similar to those returned by the underlying index, subject to tracking errors.

    Why can index funds be a good investment choice?

    Index funds offer several benefits to its investors, which include:

    • - Single access point to diversified securities of a specific theme

      Index funds give portfolio exposure to a diversified cross-section of securities that are found in the index through a single investment tool.

    • - Periodic rebalancing - Follows ‘principle of natural selection’

      By tracking a market-driven index, these funds allow market behaviour to govern stock selection. This keeps you invested in top movers of the market through a passive investing model.

    • - Reduced active stock selection risk

      By simply tracking the index, these funds eliminate the element of human bias in stock selection, thus it is not susceptible to ‘active stock selection risk’

    • - Liquidity

      With no entry load and generally no exit load (typically nil after 90 days), investments in index funds offer investors liquidity throughout the tenure of the fund. Their units can in fact be bought and sold through both regular and direct plans.

    • - Low minimums

      Like most mutual funds, index funds give wide portfolio access at low minimum investments – as low as Rs.500.

    • - Reduced investing costs

      A passive investing strategy allows index funds to have a low total expense ratio, reducing the cost of investing.

    Who are index funds best suited for?

    Index funds are suitable for:
    - Investors looking to minimise active stock selection risk and incur lower costs than actively managed mutual funds

    - Investors, especially novice investors looking to earn market-linked returns that are more or less at par with those earned by the index

    - Investors looking to invest in a specific segment or theme without taking on the hassle of active stock selection


    FAQs

    • How do Aditya Birla Sun Life Index Funds work?

      Aditya Birla Sun Life Index funds follow a ‘passive investing’ strategy. They invest in the same securities that are comprised in an index and in the same proportion as are found in the Index. The portfolio constituents of the ABSL Index funds thus change only when there is a change in the underlying index – at the time of index re-balancing. In this manner, ABSL Index funds seek to replicate the returns earned by the underlying index.

    • How are Index Funds different from Mutual Funds, ETFs and stocks?

      The key differences between Index funds and mutual funds and ETFs are:

      Index funds

      Mutual funds

      ETF

      Stocks

      Objective

      To earn returns that closely correspond to the total returns of securities as represented by the specified index, subject to tracking errors

      Objectives differs from fund to fund – such as to earn long term capital appreciation, regular income for its investors etc

      To provide returns that closely correspond to the total returns of securities as represented by the specified index, subject to tracking errors; through an ETF investing model

      Investors’ individual objective drives choice of stocks – objective can be short term trading gains, long term capital gains or even earning dividends

      Investing strategy

      Passive investing

      Active investing

      Passive investing

      Investors to devise their own strategy based on their investing objectives and risk threshold

      Mode of investment

      Invested at NAV – either through AMC or through demat

      Invested at NAV – either through AMC or through demat

      Trade like shares – can be bought and sold at ‘real-time’ prices on the stock exchange

      Traded in the market at real-time market prices

      Risks

      No active stock selection risk

      Actively managed mutual funds can be susceptible to higher fund manager risks

      No active stock selection risk

      Risk concentrated on price performance of selected stocks

      Costs

      Low expense ratio than actively managed mutual funds

      Higher expense ratio

      Lowest expense ratio – higher transactional costs

      Involves transactional costs such as brokerage, STT and other taxes

      Need for demat

      Demat account is not mandatory to invest

      Demat account is not mandatory to invest

      Demat and trading account is a necessity

      Demat and trading account is a necessity

    How To Invest?

    How To Invest?

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    Invest Online

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    Send an Advisor

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    Call1-800-270-7000

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    Application Form

    Visit our office

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