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POSTED BY ON April 1, 2012 7:50 pm COMMENTS (14)
lets stop discussing about, how many large cap funds? mid cap funds? value and growth style…
here is an eye opener
http://valueinvestorindia.blogspot.in/search?updated-max=2012-01-08T09:50:00%2B05:30&max-results=4&start=4&by-date=false
see the above URL, rohit chuahan writes with crystal clear views, he is a respected value investor, he has stunned many by his wisdom
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@ashal – yup, i knw dat, it is not easy to have expertise in quick flash, it takes considerable amount of time, hard work, wisdom and thoughtful clarity, but all we can do is learn, learn and learn…wht else we can do?
i didnt say stop investing in MFs, i just cleared ur contradiction, i was just saying that whatever approach he adopted for 8-9 yrs (mf inveatment), was crystal clear, and it makes sense hearing his thoughts…after all beauty lies in simplicity…btw the comment mentioned in above article was asked by me…so i was bit confused too
wht do u think of index investing? nifty bees?
Dear Ajinkya, the truly diversified index fund as per my own version is Goldman Sachs’ S&P CNX 500.
Thanks
Ashal
I agree with several of the points made here but I am not sold on Index funds yet.
In the US and much of the developed world If you look at the Mutual fund as an ‘entire industry’ it has returned lower than the Index itself. There it makes sense to invest in Index funds [Ask John Bogle]
However India has decades and decades of economic growth and stock market returns left. INdex has returned 12% CAGR over a decade and if there is a 0.5% expense my return is approximately 11.5%. Some actively managed funds have provided more than 17-18% over a decade (which is not fluke) so paying them 2% expense is fine as the final return is still 15+% CAGR.
In about 15-20 years when the real growth (nominal minus adjusted for inflation) in India approaches the global average of say 3% we will all be discussing the best Index fund! Until then enjoy the returns provided by Actively managed funds.
I just want to clarify that Index funds FMC is over and above the cost of buying and selling at the Stock Exchange (add 0.3-0.5%+STT+something=0.5-0.75% at the time of buying as well as selling). While for index MF like Franklin Index funds (at zero entry level cost or a max. of Rs.100-125) it is 1.0% (you can check others too). So, that way, index funds do not come cheap in India.
In US, there is a 5-7% entry load on active funds, which kind of tilts the balance (purely in terms of FMC) in favor of index funds (which sometimes cost 0.2% per year).
Simple diversified funds (which websites have differentiated into large-mid and multicap, not the funds or AMCs themselves) are better in my opinion.
Ramesh
ramesh has clearly mentioned the crux of the article, but ashal has some issues, let me try to clear those-
1. blogger was initially investing in MFs as well as in direct equities, but as he discovered that he has gain enough expertise in art of investing and convinced that he can get more returns than MFs, he stopped investing in MFs…it took him 8-9 years to come to this conclusion, so its his tried and tested strategy…
2. there is diff between investing in MFs and Direct equities..if we are passively entering into market, we must concentrate more on how to gain max returns in long term, say in 10 yrs, rather than selecting funds of specific caps so that we can plan how much % of our money is getting invested in small, large, mid caps…we must have d faith in fund manager…we cant have an active control over our money when we are investing it passively…
3. index funds in india is a debatable issue, but i think niftybees has expense raito of 0.5%, it is not exactly a low cost but a decent expense raito…what do you think?
4. i think nifty bees would be an ideal retirement fund, considering a horizon of 15-20 yrs, low cost, liquid, passive so no fund mngers personal bias, one unit costs around 500 range, ie. 1/10 th of nifty index, so low income people can also invest, what are ur views??
Dear Ajinkya, thanks for clarifying. By the sheer no. of question asked in this forum, are you sure that each & every person ‘ll attain that stage of denying MFs after 8-10Y & investing on his/her own in direct Eq.? I know very well that direct Eq. if selected rightly, ‘ll provide top notch return but the question remain same – how many intelligent people among us are there to reach that stage?
A single pure diversified Eq. fund should provide good return but how many funds are there who remains fairly diversified? Selecting from 5000+ stocks or some 200-300 + Eq. schemes, what is easier for a common man like me?
Thanks
Ashal
@ Ashal,
To comprehend what the author wants to tell you, you need to go through his other posts as well (so that you can have an idea about his thought process).
Personally, I agree with the diversified equity fund part (and if there were any reasonable index funds, I could have thought of keeping them in my portfolio as well, but presently not).
@anshal-
i just wanted to comment on the thought process which we apply while selecting mutual funds
large cap, mid cap, small cap funds restrict the freedom of fund manager to select stocks, this is the key message above article is trying to give, rather we must go for multicaps so that in longer run we will get more returns in reward…i m summing it up, if u want to have a discussion on each and every point, share what u agree or disagree about the comments made in above article
Dear Ajinkya, I’m neither agree nor disagree with the article posted out by you. I’m still trying to understand what the author wants to convey? On one hand, He is not investing in MFs at all & then recommending it for others & then even in MFs recommending Index funds. Now from the author’s own version, an Index fund is also limiting the available options to invest in. For example – A Sensex Index fund ‘ll invest only in those 30 shares or a Nifty one ‘ll invest only in those 50 shares.
Am I missing something? I’m still trying to figuring it out for my own understanding. Please do note I’m not criticizing the author but trying to understand what he wants to convey?
Thanks
Ashal
@ Ashal,
I think I would go with your thought process than with the author. Frankly speaking, by the time I went to the end of the post, I became confused as the article had multiple dimensions to it. Either you like MFs or you don’t. Either you prefer diversified MFs or you would want specific market cap / sector funds.
His comment upon just investing into diversified sector makes sense, but then one is relying too much on the fund manager to decide without any boundaries to match with the risk perspective of the investor. If I invest in Large cap funds, I am sure that the fund manager won’t make me exposed to small companies which increases my risk appetite and vice-versa.
Hence I would not really agree with the post. It is a very strong comment to point that multiple categories are ways to provide Financial Advisors options to make money. I am not sure if I would subscribe to that view.
Regards
BFA
As I understand, if one gets a recommendation that he should have 1 large cap, 1 large-and-mid cap, 1 multicap and 1 mid-small cap fund, the author wants to say that such a concept of multiple funds is unnecessary and meaningless. In turn, he should invest in a single multicap / flexicap fund which CAN access across sectors and which has proven its record for a number of years.
If you are opting for an actively managed fund, then go with a multicap fund with a proven record for a number of years. If you do not want to have the fund manager risk, then go with a passively managed fund (index fund). This is to me the summary of that post.
Ramesh
Dear Ajinkya, what do you want to tell from this post? Can you yourself elaborate?
Thanks
Ashal
looks to be a good article, thanks for sharing
if anybody is finding it difficult to search the relevant text, i will paste it for u here..
What mutual funds to buy?
I recently received the following comment (slightly edited) on mutual funds.
One thing i need to ask about your mutual fund portfolio is diversification..i am commenting about 5 funds u have selected ( may be possible that u don’t have any positions in them now )
1. Are all your funds are large caps and multicaps..why?
2. Don’t u believe in core and satellite approach which many magazines, papers are advocating these days
3. you are an aggressive investor and your mutual portfolio doesn’t reflect that?
4. u have invested in growth style funds only..not in any value fund why? don’t u think diversification in investment style is also necessary
The above comment raises good questions and as it was not possible to do justice via a comment, I have decided to take it up in this post
First a disclosure – I do not hold any mutual funds now. It is true that I have held mutual funds in the past (for almost 8-9yrs) as I elaborated in this post. I also elaborated on why I followed this strategy inspite of investing in stocks (see here).
In addition to the reasons in the post, I have always had this question in my mind – Are my return due to luck or skill? One needs to look at performance over a long period of time to be sure that the results are mainly due to stock picking skills and not a fluke. After picking stocks for 10+ years and outperforming most of the mutual funds I held during this period, I am inclined to believe that it must be due to skill and hopefully not luck (though one can never be sure).
My mutual fund selection process has never been based on market cap, investment style or any core/ satellite approach. You can find my approach in selecting equity funds here.
Frankly, I find the entire market cap, value versus growth or any other approach of selecting mutual funds downright self serving on part of financial advisors, mutual fund companies and personal finance magazines. How will they make money if they give you a simple, though equally effective plan ?
I have never quite understood the market cap or sector approach to fund selection till date. It is like asking Sachin tendulkar to score a hundred while playing only 3 balls in each over. Why would you want to invest in a fund where you restrict the manager in his or her stock picks? I would rather go with a diversified fund where an intelligent manager can picks attractive stocks with no restrictions.
I would personally prefer to invest regularly in index funds or widely diversified equity funds with a long term track record . My suggestion may appear as odd and opposite of what almost everyone has to say. I would rather keep investing in mutual funds simple and focused on the basics and not get carried away with all the fancy marketing which is used to sell garbage to investors.
On the last point of being an aggressive investor? I actually consider myself quite risk averse (to the point of being chicken) and am constantly obsessing with the downside of my stock picks. The upside on the other hand usually takes care of itself.