A Review of Indian Index Funds

An index fund is a mutual fund that aims to imitate some benchmark index. There are several advantages of investing in an index fund, namely, exposure to a diversified portfolio, minimization of company-specific risks, high liquidity, etc. In India, there has been a significant growth in the number of index funds from 2002 onwards. Today there are more than 20 index funds imitating the NIFTY or SENSEX. In this article, we review and compare a number of Indian index funds. The CRISIL composite ranking of an index fund reflects the quarterly performance of that fund and is subject to fluctuations. We are interested in those index funds that do not deviate significantly from the underlying benchmark index in the long run. This ensures that an investor gets the benefit of any strong rally in the benchmark index, which the index fund imitates. We identify some index funds that satisfy our criteria, and are also ranked above three (indicating above average performance) in the CRISIL rankings of March 2011 and December 2010.