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Nilanjan Dey

Kolkata, Oct. 1

For the first time in months, index funds seem to be getting the upper hand vis-À-vis actively-managed diversified equity funds, bringing new hope to India’s small but growing community of index enthusiasts.

Index funds have topped the diversified pack, albeit by a narrow margin, considering their three-month average performance as on the last working day of the previous month. Against 17.77 per cent delivered by the indexers, diversified funds dished out 15.01 per cent.

The picture is different when six-month or one-year numbers are considered. For both periods, diversified funds scraped through, figuring ahead of their index counterparts.

The gains recorded by the index products, after factoring in tracking error, are derived from the advances recorded by the broad market — reflected in the rise of the two leading indices, Sensex and Nifty.

Both have scaled new peaks in recent days, the former trading at well over 17,000 points and the latter at over 5,000 points. On Monday, the two ended the session at 17,328.62 points and 5,069.95 points, respectively.

The churn in the list of performers may be seen in the overall context of changes in figures turned in by sector funds as well.

While banking sector funds have maintained the lead over a fairly long period of time, other sectoral products have indeed changed positions.

For the record, diversified funds provided 35.23 per cent and 41.02 per cent over six-month and one-year periods respectively, while index funds delivered 34.19 per cent and 39.26 per cent respectively, over these periods.

These statistics, pertaining to September 28, are courtesy Value Research.

However, popular sentiments in favour of diversified funds hold strong, despite all the competition that index products have been giving them lately.

Distribution outfits indicate that the demand generated from the investing public is invariably for the actively-managed options.

“We too have been telling clients to invest regularly in diversified equity funds, relying on the stock-selection skills that fund managers have. However, this is not to say index funds, left to themselves, will not do well,” maintained Mr Hitungshu Debnath, Director, Wealth Management Group, Motilal Oswal Securities.

Indexing has not been among the preferred options for the Indian investor, some fund men suggest with reference to historic trends.

“Investing in index funds has not gained the kind of esteem that some sections want. That is because many investors in India, and elsewhere too, have wanted to bet on classical active management. But what does go in indexing’s favour is low cost of operation,” said Mr Paritosh Thakore, Hong Kong-based head of Asian equities at ABN Amro Asset Management (Asia).

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