The Hindu Business Line : `Focus seems to be on equity funds that try to outperform benchmarks'

TO say `Benchmark MF is a believer in indices' would be a clear understatement. To suggest `it believes in indices and indices alone' would be closer to the truth.

Indeed, the MF proposes to firmly stand by what has been its core business so far - exchange-traded funds (ETFs).

Mr Sanjiv Shah, ED, maintains, the idea is to encourage more investors to try out index-based investing.

Excerpts:

When you mention passively managed index products, are you concurrently saying that active fund management is not effective?

In a way, yes. What I mean is that active management is perhaps not the most efficient way to invest.

In fact, there is a serious - and historic - rivalry between proponents of the two concepts.

As things stand, more investors in this country are tuned to funds that follow active strategies, ones that sometimes label themselves as `growth' and `value', or increasingly, `multi-cap' and `mid-cap'.

Remember, the concept of tracking an index is fairly simple: Generate returns that, prior to expenses, correspond with the performance delivered by the chosen benchmark.

But index funds just do not sell in India... .

That is true, unfortunately. The point is, this genre of products does not find all-round appreciation.

The fact that index funds are basically a low-cost option is largely ignored by the investor fraternity.

Distributors also do not offer them in the way we want them to; they push other schemes instead.

The entire focus of the market seems to be on equity funds that try hard to outperform their benchmark indices. It is not that they succeed every time. The most recent surge in the market, for instance, has not really driven these funds.

An index fund could have done wonders during these times, provided its tracking error has been kept on the lower side.

In a situation such as this, how would your business grow?

We propose to moot newer products as we go along. The plan is to work out funds based on more indices.

Benchmark MF already has funds based on Nifty and Nifty Junior. Among sectoral indices, we have chosen the CNX Bank Index to devise a scheme. There are a couple of portfolio management schemes too.

The latest proposal from our stable, which has been named Split Capital Fund, embodies a strategy to tap more investors. This is a three-year close-ended fund that offers two classes of units.

Here, its equity investments will mirror the Nifty. The market in India is changing in terms of investors' needs and preferences, and structured products such as these are likely to come across a good number of takers.

Any developments vis-à-vis the gold fund that you had conceived?

Not really. But we have been encouraged by the government's latest stand on the matter.

About three years have passed since we had worked out the gold ETF.

Gold BeES, as we named it, was meant to track the domestic price of gold through investments in debt securities linked to the prices of the metal.

Let me state in this context that the inclusion of gold in a portfolio could have enhanced its returns over the recent past.

We would have been happy to have launched it here, provided the regulations were in place.

Similar products have come up elsewhere in the world.

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