Fund houses are gradually waking up to the need to offer index funds to their investors.
IDFC Asset Management Co. Ltd launched a new open-ended index fund, called IDFC Nifty Fund. This is a passively managed fund that will benchmark itself against the Nifty. It will invest in all 50 scrips that lie in Nifty in the same proportion.
This is a passive fund; its fund manager will not be able to determine the stocks he wants to buy or sell and when.
However, index funds aim to offer a low-cost avenue to invest in the markets. The more they replicate their benchmark index in terms of investments made, the lower is the tracking error—the difference between index fund returns and that of its benchmark. The lower the tracking error, the better is your index fund, and this is what separates one index fund from another.
The fund house has said that it will also offer investors the option to redeem their investment if it appreciates by a certain margin that investors can decide. In mutual fund parlance, this facility is called a trigger facility. The new fund offer is open for subscription from 12 April and will close on 23 April.