Index fund a good diversified fund ?
I am writing to share with you all why it makes sense to invest in the Index fund which is SENSEX/ Nify Based.
Normally a good diversifed fund should have atleast 15 stocks to it's portfolio and should invest in more than three sectos.
How does a Index fund compare in this
BSE has 30 stocks which are large caps and is diverified across 17 sectors !
NSE has 18 stocks which are primarily large Caps and is diverisfied arocss 18 sectors
Here's the breakup to make your judgement
BSE
INDUSTRY % Wieghtage
ALUMINIUM 1
AUTO 2.8
BANKING 10.3
CEMENT 1.2
CONSTRUCTION 4.6
DIVERSIFIED 0.9
ENERGY SOURCES 8.6
ENGINEERING 7.3
FIN. INSTITUTIONS 3.3
FMCG 5.8
MISC 1.3
PETROCHEMICALS 16
PHARMA 1.5
POWER 8
SOFTWARE 13.2
STEEL 2.3
TELECOM 11.9
NSE:
INDUSTRY % Wieghtage
ALUMINIUM 1.9
AUTO 2.6
BANKING 8.6
CEMENT 1
CONSTRUCTION 5.1
DIVERSIFIED 2.3
ENERGY 1.7
ENERGY SOURCES 11
ENGINEERING 8.5
FIN. INSTITUTIONS 2.6
FMCG 4.5
MEDIA 0.3
PETROCHEMICALS 12.6
PHARMA 2.4
POWER 8.7
SOFTWARE 11.1
STEEL 4.2
TELECOM 10.8
So investing in an Index fund has the right diversification across stocks and sectors !
Also there are the following advantages
1. Low cost, Zero load and annual cost of 0.5% as againt 2-2.5% for a diversified fund. e.g. UTI Master Index fund.
2. Index consists of Blue chip companies which are well researched and have stable operation model
3. Index is updated , e.g. on Sensex Dr Reddy was replaced by DLF.
4. They are all Large CAP companies which have sound management.
take your pick !
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