Quantum Index Fund - RGESS Compliant

Rajiv Gandhi Equity Savings Scheme (RGESS) encourages the 'New Retail Investor' to channelize savings into domestic capital markets by providing tax benefits to the 'New Retail Investor' who can invest up to Rs.50,000/- in 'eligible securities'.

For a new retail investor it is difficult to determine where to park his savings, is the equity share he is going to buy at its correct value or is he paying too much for that share?

Similarly, it is not easy selecting a mutual fund scheme managed by active fund managers who basically rely on analytical research and their own judgment and experience in making investment decisions on what securities to buy, hold or sell. Taking the final plunge to invest in equity shares or equity related mutual fund schemes requires lot of time to study the fundamentals of various equity shares of companies or selecting the right mutual fund scheme. This is a job in itself requiring a lot of time and effort.

Considering the above fact, for a new investor, investing in an Index Fund may be a good option. Index Funds invest in equity shares of companies in such a way that it has an index as an underlying security. When the value of the Index appreciates, the fund’s value goes up and vice versa. It follows “passive” investment strategy. Passive investment strategy is a financial strategy in which a fund manager invests in accordance with a pre-determined strategy that doesn't involve any forecasting. The idea is to minimize investing fees and to avoid the adverse consequences of failing to correctly anticipate the future.

Basically, the aim and objective of an Index fund is to match or mirror the underlying index. E.g. if there is a NIFTY based Index fund then that fund will purchase and sell securities in exactly the same proportion as that on the NIFTY. The fund managers aim is not to beat the benchmark, but to match the benchmark and get as close to the benchmark as possible.

Index Funds are generally cheaper than actively managed scheme as firstly the Expense Ratio of index funds are generally lower then actively managed schemes and secondly the cost of transactions in Index Funds are low; as fund manger transacts only when there is change in index composition or in case of creation or redemption in the fund, or raising money for expenses or investing income received as dividend/interest, where as in case of actively managed scheme, the fund manager may transact in the portfolio as many times as he think so.

If you are looking at truly diversifying in the equity segment then the Index Fund is a good option, if the underlying Index is a broad based Index i.e. it covers most of the sectors. This is important, as when you are investing in Index Fund you know where the fund manager is investing your money, whereas with actively managed scheme, you come to know about the investment only when you receive the fact sheet and there is possibility that by that time the fund manager of your scheme may have changed certain investments.

Many mutual funds offers Index Funds as an Exchange Traded Fund (ETF) i.e. it is traded on exchange just like any equity shares of a company. The traded price of ETF changes according to the changes in the underlying Index whereas in case of other open ended mutual fund scheme, Investor comes to know about his actual transaction price at the end of day when the NAV of the fund is declared.

Quantum Index Fund (QIF), an open ended Exchange Traded fund is an ETF tracking S & P CNX Nifty (Nifty) which is diversified across 50 stocks across 22 sectors and represents around 65.87% of Free Float market shares of the National Stock Exchange of India (NSE) as on 31-Dec-2012.

Each unit of Quantum Index Fund will be approximately equal to 1/10th (one tenth) of the S & P CNX Nifty. The investment objective of the scheme is to invest in stocks of companies comprising S&P CNX Nifty Index and endeavour to achieve returns equivalent to the Nifty by "passive" investment. The scheme will be managed by replicating the Index in the same weightage as in the S&P CNX Nifty Index with the intention of minimizing the performance differences between the scheme and the S&P CNX Nifty Index in capital terms, subject to market liquidity, costs of trading, management expenses and other factors which may cause tracking error.

Quantum Index Fund also qualifies under RGESS (Rajiv Gandhi Equity Savings Scheme). Since, Quantum Index Fund, an Open Ended Exchange Traded Fund makes investments in stocks of the S&P CNX Nifty Index which qualify for investments under RGESS, a New Retail Investor who complies with the conditions of the RGESS shall be entitled to the benefits of the RGESS for investments made in Quantum Index Fund.