Low-risk index schemes good for long-term investments

Investments in index schemes are maintainable over a long period of time as both risk and reward are limited. The UTI Mutual Fund has launched two such new schemes and Kotak Mutual Fund has launched one scheme. Some investors are also opting for 'momentum investing' which involves high returns along with high risk.

Hyderabad : Index schemes may not promise high rewards but they come at low risk. They are reliable for long-term investments. The UTI Mutual Fund has launched two new schemes - 'UTI Nifty 50 Equal Weight Index Fund' and 'UTI S&P BSE Housing Index Fund'. Both are index schemes. The minimum investment in NFO is Rs. 5,000. Sharwan Kumar Goyal and Ayush Jain will act as fund managers for UTI Nifty 50 Equal Weight Index Fund.

The Nifty 50 Equal Weight TRI index is taken as a measure of the performance of this scheme. Funds raised under this scheme are invested in shares of companies that are part of the Nifty 50 Equal Weight Index. Companies belonging to banks, IT and petroleum products sectors have high weightage in this index. Almost 50 per cent weightage is for these three sectors.

UTI S&P BSE Housing Index Fund is a completely new scheme. No mutual fund company has introduced such a scheme before. The credit for bringing this for the first time goes to UTI Mutual Fund. S&P BSE Housing TRI index is taken as a measure of the performance of this scheme. That is, the portfolio of this scheme will be built with the shares of the companies in this index. The index has returned 13 per cent over the past year. Looking back over the last three years, there is even more to come. Companies mainly belonging to the construction sector are included in this index.

Low maintenance costs in index schemes are positives. In addition to this, the growth seen in the indices is somewhat sporadic in these schemes. Risk and reward are limited. Such schemes are suitable for investors who want to maintain their investments for a long period of time.

Kotak Mutual Fund has launched a new scheme named 'Kotak Nifty 200 Momentum 30 Index Fund'. It is an open-ended index fund. Nifty 200 Momentum Index Fund is taken as the performance measure of this scheme. Kotak Nifty 200 Momentum 30 Index Fund 'Portfolio' will be created based on the 'Normalized Momentum Score' with the main companies in this index. The Nifty 200 Momentum 30 TRI Index has earned an average annual return of 20 per cent over the past decade. This is much higher than the 14 per cent return achieved by the Nifty 200 TRI.

'Momentum Investing' is an interesting investment strategy. Some stocks show a strong 'uptrend' regardless of stock market trends. The share price will increase rapidly. The main principle of this approach is to identify and invest in such a trend to earn high profits. Such opportunities are abundant in a country experiencing rapid economic development. The risk involved in this type of investment is very high. A fund manager should be skilled and be able to identify momentum, invest and exit at the right time.