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Sunday, September 09, 2001













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IDBI Index I-Nit: Invest

Recommendation: Invest

Aarati Krishnan

VERY few equity funds consistently outperform the narrow market indices year after year.

This makes index funds such as IDBI Index I-Nit a reasonable investment option. IDBI Mutual Fund has had a chequered track record in managing equity funds. But, as this is a passive index fund tracking the S&P CNX Nifty, investors in the IDBI Index I-Nit need not assume the risks of poor stock selection by the fund manager. Investment in the fund may, therefore, be considered by investors looking at a three- to four-year time frame.

Suitability: IDBI Index I-Nit, like other index funds is suitable for investors with some appetite for equity risk. But index funds carry a lower degree of risk than actively managed funds in the sense that they circumvent the risk of poor stock selection by the fund manager.

But given that much of recent market interest has been focussed on large-cap index stocks, an actively managed fund could outperform the narrow market indices in the event of a sustained bull run. Therefore, investors willing to assume additional risks (with the possibility of higher returns) should invest in an actively managed diversified fund.

Performance: Initial investors in the IDBI Index I-Nit are likely to have suffered capital losses. This is mainly on account of the timing of the launch, which coincided with the bull market of 1999. Since its launch in July 1999, IDBI Index I-Nit has tracked the S&P CNX Nifty (its benchmark index) pretty closely both through market peaks and troughs.

Since launch, the NAV has lost around 20.5 per cent in value against a 20.8 per cent fall in the S&P CNX Nifty. The tracking error of 0.3 per cent appears to be acceptable. The error has, in fact, remained in this range through the tenure of the scheme.

With the equity market at reasonably low levels now, the fund should be able to turn in a reasonable capital appreciation over a three- to four-year time-frame.


Click here for Chart

Portfolio: As the portfolio mirrors the S&P CNX Nifty, the highest sectoral weightages in the fund are to FMCG stocks (at around 29 per cent) and petroleum and petro-product companies (21 per cent). IT stocks make up around 15 per cent of the assets, followed by pharma, at around 8 per cent.

Since the fund tracks the Nifty, its portfolio is more diversified than that of a passive fund tracking the Sensex. The fund also has significantly higher weightages to FMCG stocks than an index fund that tracks the Sensex.

Fund facts: The IDBI Index I-Nit was launched in July 1999. It charges an entry load of 1 per cent on investments of less than Rs 5 crore and no exit load. The minimum investment limit for a new investor is Rs 5,000. The fund sets a minimum repurchase limit of Rs 500, or 50 units. The fund managed net assets of Rs 174 crore by end-June 2001.


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