Marked to Market ; Use Index Funds to Soup Up Your Portfolio Without Taking On More Risk.

Summary

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The typical equity investor in India is a seasonal investor, who tends to rush into a bull market and gets carried away with the good returns from diversified schemes," says Hemant Rustagi, CEO, Wiseinvest Advisors. This is a perfect description. And when the market gets volatile, like now, or when it slides, the retail investor, trapped without an exit route, pulls out of equity altogether, opting to go with small savings, debt instruments and other assured return, low-risk avenues.

Is there no middle path? For the conservative investor who would like to start flirting with equity, there are index funds. However, this option has been largely out of favour with Indian investors. And for obvious reasons. Returns generated by diversified funds have consistently beaten those by index funds. In the past year, diversified funds have given an average return of 49 per cent compared to 37 per cent by index funds.

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Extract

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Marked to Market ; Use Index Funds to Soup Up Your Portfolio Without Taking On More Risk.

Do those numbers tell the whole story? What's not immediately obvious is that at 37 per cent returns, index funds make an excellent low-risk, low-cost, low-involvement equity variant. "I advise conservative investors to start with index funds, learn to live with the volatility and then move on to other options," says Gaurav Mashruwallah, a certified financial planner.

Investing as they do in the securities of the target index in the same weightage, the chief attraction of index funds is that they are passively managed, because of which they are low-cost and have transparent portfolios. Says N. Sethuram, CIO, SBI Mutual Fund: "Index funds a...

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