The Telegraph
Since 1st March, 1999
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Index funds cheer up UTI

Mumbai, Aug. 24: Cash-strapped Unit Trust of India (UTI) has something to cheer about after months of investor angst and few signs that money’s flowing into its coffers. Master Index Fund (MIF) and Nifty Index Fund (NIF) are two schemes that appear to have found enough takers for it to hope that things might be on the mend.

The two index funds have received Rs 25 crore more than they paid over the past fortnight. “We had steady inflows,” said Sanjay Sinha, the UTI fund manager who oversees them. The fresh money is reported to have come largely from institutional investors who bet when indices are scraping the bottom.

Analysts tracking mutual funds say investors could be the big banks, mainly the state-owned ones, sitting on a mountain of cash. Typically, they are conservative and would like to ride the recovery from the bottom. These banks are savvy, but conservative, and usually enter when the indices are perceived to be close to the bottom. This is the time when investors see little downside risk in investing in these funds,” an analyst said.

MIF is a passive fund that replicates the proportion of stocks as they are packed into the 30-share BSE sensex. NIF is also a passive fund that replicates the proportion of shares in S&P CNX Nifty. Over any period of time therefore, returns from the two schemes match the rate of growth in the indices they have been tied to.

MIF, which tracks the BSE 30-share sensitive index, has a corpus of over Rs 265 crore and is by far the largest index fund in the industry. Nifty Index fund is a distant second with a corpus of around Rs 125 crore.

UTI’s tracking error record for both these funds have been impressive. While the tracking error since inception for MIF is at 0.21 percent, for NIF it is 0.27 per cent.

Index funds are unique instruments in that they do not offer rights, bonus or dividend. They are meant for dynamic investors who place a wager on the course of market. They normally move in when net asset values (NAVs) are low, and clear out when the value is highest. Analysts say the Nifty Index Fund was launched at a time when markets were under the grasp of bulls. Therefore, its net asset value (NAV) is pegged at a modest Rs 5.97 per unit. In the case of MIF, the scenario is marginally better with its NAV quoting around Rs 9.27.

Analysts expect the interest to spread to index funds as pivotals consolidate around the present levels.

Investors investing in the two funds have starkly different attitudes and outlook. Those who see greater promise in conservative old-economy shares would go for the MIF since it is linked to the fortunes of the sensex, an index that is skewed in favour of brick-n-mortar firms. Those who think there’s money in new-economy firms would opt for NIF, which twitches with Nifty.

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