The Liquid fund will be an open-ended scheme with no lock-in period. The scheme will simultaneously target ten centres in India and is aimed at the short term money market. Mutual funds have been launching quasi-MMMF to circumvent the RBI rule of a lock-in period of 15 days for money market mutual funds. Thus, to avoid the lock-in period mutual funds launch liquid funds to tap the surplus short-term money flowing into the market.

The index fund will track the S&P CNX Nifty-50. "We have chosen the S&P CNX Nifty mainly because the name of S&P with the index lends it credibility and reputation. Also, S&P would be regularly updating us on the developments in the index, how the index weightages are changing, information on Indexcompanies etc. They would be maintaining the index and regularly provide data on building the index among other services", said a senior official at IDBI Mutual Fund.

"S&P would be charging us a fees for the services rendered but we still have to work out the structure with them. The fee is negotiable and we could trim it down or S&P could increase it depending on the kind of service required by the fund. We have not chosen the sensex because the BSE does not have any set up whereby it can provide value-added services and secondly, the number of companies in the sensex are less than that of Nifty", he added.

The concept of index fund, which is new to India, was recently pioneered by the Unit Trust of India. UTI had launched an index fund namely, Master Index Fund which tracks the sensex.

"We are keeping an initial target of Rs 100 crore for the index fund. With index funds, you forgo the opportunity to beat the market, but you are assured of not being a laggard, either", he said.

Index stocks areessentially unmanaged. They buy and hold the same stocks or bonds that are included in the popular benchmark index. They appeal to the investors seeking low costs and the assurance of very closely tracking the market's returns. In a pure passive fund turnover and transaction costs are low besides the management fee also tends to be minimal.