I have been asked this question many times – should I Index my money or should I look for good fund managers. The caveats first – I am a horrible person to follow. I have been an equity broker, an equity researcher (I used to sell equity research reports), I used to write for magazines about company performance, and more importantly I know 3 people to call to verify/ check my rudimentary conclusions. My educational qualifications and experience and contacts allow me to be a direct equity investor. For testing the waters and for some action I invested in equity mutual funds in 1996/7….and am still holding some bluechip funds from FT, Hdfc, and Icici Pru – and the amounts invested are not much, but the funds have done well.
Given the background, why should I suggest INDEXING?
- The gap between an index fund and a large cap fund is shrinking.
- The correct number to look at is the ‘Total Return Index’ – whereas the fund houses are comparing it to the Sensex
- The Regulator has no clue on bench-marking, so till then, Kallivalli…
- Schemes like I Pru discovery will give ME good absolute return..and I do not care about Relative returns
- Franklin Bluechip vis a vis the TRI cannot be a great difference. The gap will narrow.
- Going forward the gap between the large cap funds and index will fall.
- The standard deviation in the large cap fund category will be low.
Having said that the following is also true:
- The Index in India is poorly structured, so beating it is not difficult – all fund managers seem to beat it, regularly.
- As more and more money goes into the index, it will become EASY for fund managers to beat the index.
- If all fund managers are able to beat the index, selecting a good fund will also become difficult!!
- By definition the Indexation portfolio over a 30 year period should work without any worry.
Personally I position trade, day trade, do delivery based trade, am a value investor, am a momentum investor, …but If I am asked by a person whom I may not meet again in life, I would say ‘Indexing’ – at least there is no fund manager risk.
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