Investing in index fund in lump sum or through SIP is considered a good option as compared to active investing. There are many index based ETFs and mutual funds in India although they are not as popular as in the west.
Index investing is popular in the west and not as much popular in India. In India, Actively managed funds have managed to give better returns excepting the recent past where the markets have been highly volatile.
Index funds are supposed to match the returns of the index and so the management cost is supposed to be low.Some actively managed funds don't even match up to the returns of index funds. So, should we all switch to index funds??
Was reading Parag Parikh's book on value investing where he states two facts with examples
1. Sectors that are 'HOT' find an easy way to the index ( like IT in 2000, Real estate in 2007,etc) and grab a decent weightage in Index during the bull phase of the sector.
2. Most of the times the stock that is replaced in an Index gives better returns than the replacing stock .( Some numeric examples are given in the book to prove it).
This is definitely a good perspective which states that index allows for inefficiencies and is not perfect.
So, should index funds be abandoned by investors? . Not really.
It is up to the investors to decide what exactly they expect their investments to do ( i.e beat the market or meet the market return).
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