What are different category of mutual funds?

Q: Is there any category of mutual funds for example index funds which is a zero expense fund? Index fund basically track the Sensex or the Nifty or whichever index they are linked to, in which case what is the kind of expense that I might incur on it?

A: There are no zero expense funds because a fund manager need some amount of money for the running expenses and for being paid for its expertise but index funds are quite cheap. So there could be 50-60 bps going upto maybe 100 bps. There is a category called exchange traded funds (ETFs), which you can trade even on the exchange. Those are also very low cost funds so it could be anything from 40-100 bps. So those are available and those are the maximum investments in developed markets. So if you see US market, most of the money goes into index funds and the actively managed funds, which is what we have the preponderance in India, two-thirds of those tend to underperform the index funds and there are enough studies, which have shown the expense ratio makes a big difference. So if you are paying 2-2.5 percent per annum as against 60 bps per annum, you are starting with 2 percent advantage in your favour. So we do urge customers and we have seen even at the top end customers who do like ETFs, who do like the index funds which tend to give you the broader market performance in a very well packaged manner.