Welcome back. Now we go through the process of selecting index funds for a mutual fund portfolio. We start by formulating a strategy, as we have done for equity funds and debt funds. Now the beginning of the strategy is the same. We select some index funds based on recommendations we'll find from experts, newspapers, websites, etc. Then, we conduct the fundamental analysis on this index funds that is we gather the data regarding the different metrics.
Once we have the data, we select the index funds, which provides the maximum five year returns. This is because index funds are typically long duration or long term investment plans index funds should be never invested for a short duration. So we find the in the in the long duration. What is the returns that the index fund gives the index funds which gives the maximum return in a long duration investment will be selected in our portfolio. To illustrate the strategy, I have made a selection of five index funds For the purpose of illustration only, this is not any recommendation for investment. Now the index funds that are selected for illustration are Aditya Birla sunlight index fund, Franklin India index funds HDFC index nifty 50 fund idfc nifty Fund and the UTI Nifty Index Fund.
From The Economic Times website I have gathered the five year returns for each of the five funds. Also I have gathered the figures of standard deviation and Sharpe ratio. If you look at the standard deviation, there is not much much to choose from between all of the funds, all of the funds have the same level of standard deviation. Similarly, the Sharpe ratio also is almost similar for all the different funds. However, there is a difference in the five year returns from the different fund. I have arranged the five index funds in the descending order of the five year returns.
So we get that UTI Nifty Index funds provides the highest returns at 13.14% HDFC index nifty 55 provides a returns of 13.02%. So we will select these two index funds for our sample portfolio. given here are the metrics for the two selected index funds, I gathered these metrics from Economic Times website. Thank you for listening. See you in the next lecture.