INDEX FUNDS

Global index providers are reviewing some of the stocks’ inclusion in its indices that are replicated by many foreign portfolio managers after the Hindenburg report.

Index funds

  • An index fund is a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index.
  • Index funds have lower expenses and fees than actively managed funds.
  • It follows a passive investment strategy.
  • It seek to match the risk and return of the market based on the theory that in the long term, the market will outperform any single investment.

Index funds in India

  • While index funds and exchange-traded funds (ETFs) have been in India for about two decades, they have seen an exponential growth in assets since 2015.
  • About 16% of the roughly ₹41 lakh crore assets managed by India’s mutual funds are parked in index funds and ETFs.

SEBI proposal

  • SEBI has proposed to bring the indices under its regulatory purview.
  • The decisions of the index makers not only impact volumes, liquidity and price of such stocks but also impact index funds’ returns to investors.
  • SEBI has proposed to introduce an accountability mechanism for them.
  • mandating SEBI registration for index providers
  • subjecting them to norms pertaining to eligibility criterion, compliance, disclosures and periodic audits
  • Penal action is envisaged by SEBI in case of non-compliance and incorrect disclosures.

SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB

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