Three index funds pip Sensex, Nifty

Mumbai, May 29 | Updated: May 30 2007, 05:30am hrs
Returns generated by index fund schemes, which have a portfolio that mirror benchmark indices, should ideally follow the index that it represents.

However, a study reveals that three index funds, ICICI Prudential Index fund, Franklin India Index fund and UTI Nifty Fund (Growth), have actually outperformed benchmark index, S&P CNX Nifty. A report collated by Religare Finvest shows that the S&P CNX Nifty of the National Stock Exchange (NSE) during the last three years has generated compounded returns of 39.53%.

As against this, ICICI Prudential index fund, Franklin India Index fund and UTI Nifty Fund (Growth) has given compounded returns as high as 42.51%, 41.72% and 40.78% respectively during the last three years.

Fund managers attribute this out performance to two aspects. One is a high tracking error and the other is a low expense ratio.

Tracking error indicates how closely the fund is following the index. A high tracking error means that the fund is deviating from following the exact index weightage or is investing in other assets outside the index.

Traditionally, index funds have a low expense ratio as a passive investment style is followed and does not involve large expenses.

These funds in the reckoning have also been effective in lowering the expense ratio, believe industry experts.