What happens if constituents in the underlying index change?
Constituents of an Index are changed as and when Securities in the Index do not match specific criteria laid down by the Index Service Provider or a better candidate is available to replace a constituent. The Index Service Provider usually makes announcements of change well in advance. Once Securities in the underlying index are changed, the Fund would change the Securities in its underlying portfolio by selling the Securities that are being removed from the Index and including those that are included in the Index. This will in no way affect the units being held by an investor, as the units will continue to track the index. The only effect may be on the tracking error of the scheme. Index changes are usually not so frequent. In India, historically, around 10%of the Index constituents have changed annually which means an index of 50 securities would experience about 5 changes every year.
