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?

  1. The gap between an index fund and a large cap fund is shrinking.
  2. The correct number to look at is the ‘Total Return Index’ – whereas the fund houses are comparing it to the Sensex
  3. The Regulator has no clue on bench-marking, so till then, Kallivalli…
  4. Schemes like I Pru discovery will give ME good absolute return..and I do not care about Relative returns
  5. Franklin Bluechip vis a vis the TRI cannot be a great difference. The gap will narrow.
  6. Going forward the gap between the large cap funds and index will fall.
  7. The standard deviation in the large cap fund category will be low.

Having said that the following is also true:

  1. The Index in India is poorly structured, so beating it is not difficult – all fund managers seem to beat it, regularly.
  2.  As more and more money goes into the index, it will become EASY for fund managers to beat the index.
  3. If all fund managers are able to beat the index, selecting a good fund will also become difficult!!
  4. 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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