The index fund would enable the investors an opportunity to get indices-based returns. The fund house presently has schemes which are actively managed and aimed to provide returns higher than the stock indices.An index fund provides the benefit of diversification, as index schemes replicate to a large extent the market index and help invest across sectors and market capitalisation categories. Additionally, the costs in an index fund are very low as expenses relating to trade execution, research are minimal.

Among other things, the risk of stock indices-based schemes performing below the market performance is very low as the index scheme seeks to mirror the returns generated by the index, subject to tracking error and other expenses.Speaking to The Financial Express Mr Vivek Reddy, chief executive officer of KPMF, said that though approvals are in place the business decision could still be a couple of months away.

The possibility of `A group' stocks moving into the rolling settlement mode is a factor that would be considered in launching the fund. A section of the market players had expressed fears that if `A group' stocks move into the rolling settlement mode, liquidity in many of the stocks could come down. Also, there could be a possibility of prices coming down in these stocks as speculative activity in them could dry up.

KPMF has about Rs 2,500 crore under management and has 6.5 lakh investor accounts. It was the first private sector mutual fund in the country and launched its Bluechip and Prima funds in October 1993. At present, it manages eight equity funds, four cash funds, a balanced fund and a pension fund.