What is the Role of BSE Sensex Index Funds in a Core-Satellite Portfolio Strategy?

BSE Sensex Index Funds are mutual fund schemes that invest in the same 30 companies that make up the S&P BSE Sensex Index. Do these funds try to beat the market? No! These funds simply track & replicate the performance of the BSE Sensex index by holding the same stocks in the same proportion (subject to tracking error). 

When you invest in BSE Sensex Index mutual funds, your investment may grow in line with how the BSE Sensex performs. Furthermore, they are passively managed and usually have lower costs than actively managed funds. 

Sensex was launched in 1986 and has a market coverage of about 35.17% (in terms of market capitalisation, as of September 20, 2025) (Mention Source). Many investors now view it as the foundation of their core portfolio, as it provides exposure to over one-third of India’s stock market value through just 30 top companies! (Mention source & date)

For more clarity, let’s check out some other reasons why investing in BSE Sensex Index mutual funds may be a good choice:

1. Diversification Across Leading Companies

   A BSE Sensex Index Fund invests in the 30 largest, most liquid, and financially sound companies in India. Usually, these companies are spread across different sectors such as:

   • Financial Services 

   • Information Technology (IT)

   • Power

   • Consumer Durables, Consumer Service, FMCG

     The potential advantage? Your money may not be tied to the performance of a single company or sector. If one sector underperforms, others may balance it out. Such diversification  may reduce the overall risk and provide relative stability as compared to investing in individual stocks or sector.
      

2. Transparency of Holdings

   The portfolio of a BSE Sensex Index Fund is completely transparent. That’s because it must replicate the BSE Sensex index. Thus, investors know exactly which 30 companies are included and how much weight each company has in the portfolio. This index is reviewed twice a year in June and December.

   Such clarity may allow you to understand where your money is being invested and assess the sector exposure.
    

3. You Don’t Need to be a Market Expert

   Investing in a BSE Sensex Index Fund may not require advanced market knowledge. Also, you are not required to spend time researching individual companies. That’s because the fund is structured to “mirror” the BSE Sensex Index. 

   Thus, it may be a simple way to invest in India’s top 30 companies based on free float market capitalization. This is particularly useful for beginners who may not be confident in stock selection.
    

4. Lower Costs and Market Returns

   BSE Sensex Index Funds are passively managed, and they may have lower expense ratios compared to actively managed funds. Lower costs mean more of your returns stay in your pocket. 

   Additionally, because the fund mirrors the BSE Sensex Index, you don’t depend on a fund manager’s ability to pick stocks. You may simply earn the similar return as the broader market, subject to tracking error.

    

Tata BSE Sensex Index Fund is an open-ended equity scheme tracking BSE Sensex. The investment objective of the scheme is to reflect/mirror the market returns with a minimum tracking error. The scheme does not assure or guarantee any returns.

It does this by investing in the same 30 companies that are part of the BSE Sensex Index (in the same proportion as the index, subject to tracking error). However, the fund cannot guarantee or promise fixed returns, as returns depend on market performance. 

For a better understanding, let’s check out some other key features of the Tata BSE Sensex Index Fund:

1. Benchmark

   The fund is benchmarked against the BSE Sensex TRI (Total Return Index). For those unaware, a TRI index includes both stock price changes and dividends. It may be a more accurate comparison of returns.
    

2. Tracking Error

   The fund tries to replicate the BSE Sensex. But there may be differences between the fund’s returns and the actual Sensex returns. This difference is called “tracking error”. However, the fund managers can try to keep this difference as minimum as possible.
    

3. Plans Available

   The scheme only has the “growth option” and can be invested in the:

   • Direct Plan, where you invest directly with the fund house. It usually has lower costs.
   • Regular Plan, where you invest through distributors or advisors. It generally has higher costs as compared to Direct Plan, due to commission. 
      

4. Entry Load and Exit Load

   Entry Load	Exit Load
   Entry Load is Not Applicable (no fee when you invest).	If you withdraw within 7 days from the date of allotment, Exit Load will be charged at 0.25% of the NAV (Net Asset Value). If you stay invested for more than 7 days, there is no exit load. From April 23, 2025, if you switch/ systematically transfer from a Regular Plan to a Direct Plan of the same scheme, no exit load will be charged.

    

5. Risk Level

   As an investor, you should understand that your principal may be at very high risk. The Tata BSE Sensex Index Fund could be suitable for long-term investors seeking capital appreciation and with very high risk tolerance.
    

BSE Sensex Index Fund may be a part of your core portfolio, but you can’t rely only on equities. That’s because it increases the overall portfolio risk as stock markets can fluctuate. 

Now, to minimize this risk, you may add less risky instruments to your core portfolio. These options may not give better returns, but may:

• Provide relative stability

• Aims to reduce portfolio volatility

Let’s check out some options you may consider:

After deciding on your core, it's time to pick investment schemes for the satellite part of your portfolio. Usually, the satellite part is composed of aggressive options, which may have the ability to generate comparatively better returns over the long term.. Some options you can consider are: 

• Mid- and Small-Cap Funds, such as, Tata Large & Mid Cap Fund

• Sector/Thematic Funds 

• Direct stocks

• REITs and INVITs

Wondering how much to allocate between core and satellite? Many investors use the Pareto principle, or the 80/20 rule. Under this approach, about 80% of the portfolio goes into the core for relative stability and long-term growth potential, while 20% is allocated to the satellite for return opportunities. However, you can always alter this allocation percentage based on your risk appetite and investment goals.

Now, for the core, BSE Sensex Index funds may be a good option. They:

• Provide exposure to India’s 30 largest companies based on free float market capitalization.

• Cover over one-third of India’s stock market value. (Mention Source and date)

• Offer diversification across sectors.

• Are low-cost and transparent.

• Aims to Deliver returns that mirror market growth.

Within this space, the Tata BSE Sensex Index Fund is one option worth considering. However, you may not rely only on BSE Sensex Index funds. A balanced core can also include Gold ETFs, corporate bond funds, gilt funds, and other debt instruments. Your satellite portion can then focus on aggressive opportunities like thematic funds, mid- and small-cap funds, or individual stocks.