IDBI Nifty Index Fund NFO: Review Analysis & Details

Another mutual fund house has decided to come out with its NFO or New Fund Offer. The IDBI Mutual Fund House has launched its NFO or New Fund Offer called the IDBI Nifty Index Fund NFO

In this article, we will analyse how good is this IDBI Nifty Index Fund NFO, whether this IDBI Nifty Index Fund offers anything new or unique for the investors and whether the investors should invest in IDBI Nifty Index Fund .

IDBI Nifty Index Fund NFO: Review Analysis & Details

Let's begin with some basic details about IDBI Nifty Index Fund.

What are the NFO dates for IDBI Nifty Index Fund ?
The NFO for IDBI Nifty Index Fund is currently open and will close on 31st May 2010.

What is so unique about this IDBI Nifty Index Fund ?
This is basically an Index Fund (What's an Index Fund?) which will be following a passive investment strategy and will track the Nifty S&P Total Return Index. It will buy the stocks which constitute Nifty index in the same proportion and will try to track the performance of Nifty. However, the tracking error will be important here in such kind of passive investment strategies. Tracking error is the percentage value by which the returns of a particular fund lags behind the returns of the index it is tracking. The tracking error comes because of several reasons -
1) The underlying index does not have any brokerage charges, but the Index Fund incurrs those charges
2) The ability of fund managers to effectively "track" the index
3) The frequency of tracking - some funds rebalance their portfolio in 15 days time, some in a month's time. So in order to match the index constituents, they end up buying at high price and selling at low price.
In my opinion, there is nothing so unique about this IDBI Nifty Index Fund. It is just another index fund which will be trying to gather money from investors and invest in certain selected company stocks, based upon the Passive Investing Principle.

The IDBI Nifty Index Fund will be benchmarked to Nifty S&P 50 Index.

The plan is to have 95-100% investment in Nifty Index equities and derivatives in same underlying index. And that's what raises the dounts whether it will be able to track the index properly or not.

Minimum Investment:
Purchases : Rs. 5000/- and in multiple of Rs. 100.
SIP or Systematic Investment Plan is also available.

Investment Options for IDBI Nifty Index Fund :
- Growth
- Dividend (Payout and Reinvestment)

No Tax Benefit is available in the IDBI Nifty Index Fund

The entry load for IDBI Nifty Index Fund is as follows:
Entry Load for IDBI Nifty Index Fund :
Zero Entry Load

Exit Load for IDBI Nifty Index Fund:
1% load will be charged for exit (repurchase/switch-out/SWP) on or before 1 year from the date of allotment for the subscriptions received during the NFO period.

Final Thoughts about the IDBI Nifty Index Fund?
By investing in this fund, one is betting on the tracking performance by the fund manager. Even if the fund manager manages to efficiently track the index, the investor is taking a call on the overall market performance. A similar alternative to consider investing is that in ETF - how about simply buying ETF on Nifty and trade it like a share to get the benefit of intra-day price fluctuations. See Example of Nifty base ETF here
Overall, this IDBI Nifty Index Fund is just another new fund offer for another index fund, without anything unique that sets it apart from other index funds