Last Updated on December 29, 2021 at 12:11 pm
Here are five index funds based on Sensex and the Nifty that have beat their indices in the last year! Therefore, investors should avoid such funds! Since an index fund has expenses associated with management and commissions (in the regular plan), it is impossible for an index fund to produce a return more than the index that it is tracking. However, this is sometimes possible.
If the portfolio of the index fund has stock weights that differ from the index for an extended period, the index fund will produce a return that is higher (or significantly lower) than the total returns index return (if we include dividends).
While this can happen just from fund management inefficiency, a large inflow or outflow of money from the index can cause. Therefore, index funds with a small AUM are especially vulnerable to such deviations.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
I was trying to check if there is any correlation between expense ratio and return from the list of large cap funds tracking the Sensex and Nifty. I was shocked to find a huge spread in returns! Here is the full list.Source Value Research
First, Nifty and Sensex returns are nearly the same and for the one year trailing return period considered (6th Feb 2018 to 6th Feb 2019), NiFTY TRI return was 6.93%. Now, notice the return from the funds marked in red.
The HDFC Sensex fund marked in yellow is an exception as the AMC merged its Sensex plus plan with its Sensex fund. The Sensex plus plan was actively managed to a small extent and hence the extra return in this case can be excused.
A 2-2.5% excess return over the benchmark is extremely unhealthy for an index fund. This essentially means that the fund manager did not or could not keep track the index efficiently. The most likely reason for this is clear enough if we inspect the AUM.
Five index funds beat their indices in the past year
| Fund | Expense Ratio (%) | 1-Year Return (%) | Net Assets (Cr) |
| Tata Index Sensex Fund – Direct Plan | 0.16 | 9.4 | 9.01 |
| Reliance Index Fund – Sensex Plan – Direct Plan | 0.29 | 9.06 | 12.87 |
| ICICI Prudential Sensex Index Fund – Direct Plan | 0.24 | 8.56 | 9.95 |
| LIC MF Index-Sensex Plan – Direct Plan | 1.03 | 8.48 | 19.7 |
| Taurus Nifty Index Fund – Direct Plan | 1.17 | 7.85 | 7.07 |
| Tata Index Nifty Fund – Direct Plan | 0.11 | 6.92 | 14.43 |
| HDFC Index Fund Nifty 50 Plan – Direct Plan | 0.1 | 6.82 | 534.4 |
| IDFC Nifty Fund – Direct Plan | 0.17 | 6.66 | 139.4 |
| UTI Nifty Index Fund – Direct Plan | 0.13 | 6.64 | 1076.28 |
| Reliance Index Fund – Nifty Plan – Direct Plan | 0.29 | 6.57 | 137.23 |
| SBI Nifty Index Fund – Direct Plan | 0.25 | 6.49 | 342.19 |
| IDBI Nifty Index Fund – Direct Plan | 0.2 | 6.42 | 220.79 |
| ICICI Prudential Nifty Index Fund – Direct Plan | 0.32 | 6.19 | 365.17 |
| Franklin India Index Fund – NSE Nifty Plan – Direct Plan | 0.7 | 5.97 | 249.72 |
| LIC MF Index-Nifty Plan – Direct Plan | 0.64 | 5.45 | 23.64 |
Among these, the fund marked in red, namely: Tata Index Sensex Fund, Reliance Index Fund – Sensex Plan, ICICI Prudential Sensex Index Fund, LIC MF Index-Sensex Plan, Taurus Nifty Index Fund, Tata Index Nifty Fund have an AUM well below 100 crores. At this such low levels, inflows or outflows can make the funds portfolio deviation from that of the index resuling in a higher (or lower) return,
Expene ratio vs trailing return
If the expense ratio of the remaining funds and their last one year trailing retuns are plotted, it is comforting to see that higher the expense ratio, lower the return – as it should be.
What should index investors do? How to choose an index fund?
Investors wanting to build a passive equity portfolio should not just consider the expense ratio. They should avoid low AUM funds and stick to funds with as high an AUM as possible. In fact, a higher AUM (at least 100+ crores) should be first filter for selection.
In this report we have only considered Sensex and Nifty index funds. Other index funds tracking Nifty Next 50, Nifty 50 Equal Weight and Nifty 100 Equal Weight should also be prone to such errors as many of them do not have a large AUM. Therefore investors should be wary of performance.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)