Mutual Funds
IIFL Sensex Fund: Expect passive returns

Actively managed schemes have delivered better returns than the index in the past. However, when in doubt, index schemes would be a preferred option

India Infoline (IIFL) Mutual Fund plans to launch an open-ended index scheme— IIFL Sensex Fund. As the name suggest the scheme would invest in the securities which are constituents of BSE SENSEX Index in the same proportion as in the index. Over 95% of the assets would be invested in equity and the rest would be invested in debt and money market securities. Passive investing is ideal for those investors who feel it is difficult to outperform the market, hence they would prefer to invest in equity mutual fund schemes that follow a passive investment strategy. However, in a recent analysis of three-year and five-year rolling periods we found that actively managed schemes beat the index by an average of two percentage points. (Read: Best Equity Funds )

Index schemes are expected to deliver returns that are close to those of the index. As the fund manager does not have to put in much effort, the cost structure of these schemes is lower than that of actively managed schemes. The cost for index schemes goes up to 1.70%; for other equity schemes, the costs are capped at 2.70% (excluding the additional expense ratio depending on the inflow from the beyond 15 cities). But despite the costs, passive investing does not seem a feasible option if you are looking for high returns. There are many actively managed schemes that have consistently performed, but one has to know how to choose the right scheme.

IIFL Mutual Fund has been in existence for just about two years. At present it has just two schemes, both of which follow a passive investment strategy. IIFL Nifty ETF, an exchange traded fund based on the Nifty index, was launched in October 2011. The other scheme— IIFL Dividend Opportunities Index Fund—is the only scheme that passively invests in the stocks of the CNX Dividend Opportunities index. These schemes have tracked the returns of their respective index with a fairly low tracking error. However, both the schemes together have amassed a corpus of just around Rs45 crore.

As far as expenses are related, the IIFL Nifty ETF has an expense ratio of just 0.25%, which is much less than other ETFs. The new scheme would have as expense ratio of 1.70%, which could go up by 30 basis points depending on the inflows from the beyond 15 cities. Both the schemes are managed by Manish Bandi, who will also be managing the new index scheme.

The scheme would charge an exit load of 0.50% if the investment is withdrawn before 30 days and 0.25% if withdrawn after 30 days but before 90 days from the date of allotment of units.


Other scheme details

Minimum Application Amount

New Purchase – Rs10,000 and in multiples of Rs100 thereafter.

Additional purchase - Rs1,000 and in multiples of Rs100 thereafter

Systematic investment plan (SIP):

Monthly option - Rs1,000 per month for a minimum period of six months.

Quarterly Option – Rs1,500 per quarter for a minimum period of four quarters.


Transaction Charges

For existing/new investors: Rs100/Rs150 as applicable per subscription of Rs10,000 and above. There shall be no transaction charges on direct investments.


Reliance Close-Ended Equity Fund: Timing is crucial

The returns you get from close-ended equity schemes depends a lot on when you invest and when you exit

Reliance Mutual Fund plans to launch a series of five-year and 10-year close ended equity schemes. The equity diversified scheme—Reliance Close-Ended Equity Fund—will invest in stocks from sectors and industries of all market capitalization. The allocation to the different market caps would vary depending on the overall market conditions and the fund managers’ view. The scheme would invest over 80% in equities and the remaining in debt and money market securities. The performance of the scheme would be benchmarked to the BSE 200 index. The scheme would have an expense ratio of 2.70% which could go up by 30 basis points depending on the inflows from the top 30 cities. But would Reliance Close-Ended Equity Fund be able to deliver in terms of performance? Investing in equities over a five-year period and 10-year period is a good strategy. The returns tend to be less volatile over such periods. But how good your returns are depends a lot on when you invest and when you exit even over long periods.

We did a quarterly rolling period analysis on the Sensex over five-year and 10-year periods starting from March 1991 to March 2012. The average returns over both the five-year and 10-year period was around 12% compounded annualised. Out of the 65 five-year periods, there were nine periods where the Sensex delivered negative returns and in nearly half the periods the returns were under 8%. As for the 10-year periods, out of a total of 45 periods there were just two negative periods and in 15 periods the returns were less than 8% compounded annualised. Therefore, even if you invest for a 10-year period, there is still a one-third chance that your returns could be less than 8%. This being a close-ended scheme, there is no option to invest systematically which is the ideal way to invest in equities. Therefore a lot would depend on the valuation of the market when you invest in the scheme and the market scenario at the maturity of the scheme. Your returns could vary considerably depending on these factors.

A few schemes of Reliance Mutual fund have performed well in the past. Many of its schemes were among the top schemes as per returns for CY 2012. Below are the returns of the schemes of Reliance Mutual Fund over a three-year period.

Krishan Daga would be the fund manager of the scheme. He has over 21 years of experience in the capital markets and has been with Reliance Mutual Fund for nearly five years. He currently manages the banking exchange traded fund—R*Shares Banking Exchange Traded Fund and two index schemes—Reliance Index Fund-Nifty Plan and Reliance Index Fund-Sensex Plan along with two other schemes.

Read all mutual fund research done by Moneylife, here.


I-T conducts survey on Nokia for alleged tax evasion

The Income Tax department is looking for some alleged mismatch in payments made by Nokia under the TDS category

Chennai/New Delhi: Income Tax (I-T) department officials on Tuesday conducted a survey operation on the premises of Finnish cell phone major Nokia in Chennai on charges of alleged tax evasion, reports PTI.


Sources in the department said the survey operation was conducted at the company’s premises in the Tamil Nadu capital (under Section 133 of the I-T Act) and few other locations in the country will be brought under this action.


When contacted, a Nokia spokesperson said in a statement to PTI, “Earlier today, tax officials visited Nokia’s manufacturing unit in Chennai. Nokia is fully cooperating to ensure they get the necessary information to help in their inquiry.”


“As a global company, Nokia consistently fields a large and steady number of tax queries, audits and assessments. Nokia's commitment to being a good corporate citizen is firm and unwavering. We always observe applicable laws and rulings in the countries where we operate. This has been a core principle of our operations in India, where Nokia has been present since 1995,” the spokesperson said.


During a survey operation, I-T sleuths visit only official premises of a company for investigation.


Sources said the I-T department is looking for some alleged mismatch in payments made by the company under the tax deducted at source (TDS) category. A team of about 30-40 I-T sleuths is involved in the operation, sources said.


Nokia led the Indian mobile market with 22.2% market share during first half of 2012 where 102.43 million handsets were sold, a CyberMedia Research said.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)