Do index funds have a lower risk-return ratio,compared with actively managed equity funds? -Ramesh Sharma An index fund is a mutual fund which tracks the components and performance of a market index. Index funds use the indexing method,which attempts to weigh all the securities in the index fund to mirror the target index composition as closely as possible. The idea is to replicate the performance of the index on which they are based. These funds are passively managed and thus,have a lower risk return-ratio compared to actively-managed equity funds. Index funds give conservative returns and at the same time,fall less sharply during a downturn. Moreover,the funds also help in tax savings. If you are looking for investments into index funds,you can opt for Kotak PSU Bank ETF,Bank BeEs etc. After the ban on entry load,what other charges do mutual funds levy on customers at various stages and can they guarantee returns? -Duraina Senthelvian They may charge a minor exit load at the time of redemption within the mentioned stipulated period. Apart from these,the funds may levy annual management and administrative expenses. Mutual fund returns are based on market returns and thus,no fund house would guarantee returns. Still,you can go in for capital protection funds. In a rising interest rate regime,how does a fixed maturity plan work? -Arvind Singhal Fixed maturity plans,or FMPs as they are popularly called,are mutual fund schemes that last only for a fixed period of time. The time duration can be as little as 15 days or as long as 5 years. FMPs are a great investment option when there is a lot of interest rate volatility,as these schemes invest primarily in fixed return investments like government bonds and money market instruments (very short-term fixed return investments). The maturity period for the instruments is same as the scheme. This insulates the schemes from volatility in the interest rates. I am a salaried person and want to start investing in mutual funds through the SIP route. My disposable income is Rs 28,000 per month. Please suggest how should I go about it? -Suman Agarwal The SIP route for investing in mutual funds,especially in volatile markets,is the best method. You can diversify your monthly disposable income among 3-4 good mutual fund schemes. We recommend a core and satellite investment philosophy. According to this,you allocate your corpus in a 30:70 ratio in core and satellite funds,respectively. Core funds are the funds with an exposure to large-cap funds while satellite funds have an exposure to mid-and small-cap funds. This provides a good balance to your investments. *The writer is CEO,Investshoppe.com *Send your queries at fepersonalfinance@expressindia.com
