[ashokrajagopal]

Originally Posted by carboy

This debate is not about whether any kind of investing inflates something or not. This debate is about whether Passive Investing makes sense or not.

Does it makes sense if it inflates ? To me, it doesn't.

My original comment was "Historically, index funds have outperformed a huge majority of managed funds for decades in the USA. So over the long term, your odds of doing better with managed funds depend on your low odds of picking the small amount actively managed funds which do beat the index." - to which you replied saying Index investing makes sense only when number of passive investors are small. Unless you define small, this whole debate becomes meaningless.

Well, I can use a different word for small to define it, but you need a number, right? Once the majority of investors become passive and just track the index, it starts to inflate. Now, is that 50%, 40%, 30% ?-- I do not know. Possibility of inflating prices is very real and is the only logical outcome of increased number of "passive" investors.

This debate is not about a particular index. It's about passive investing in general & my original reply to SmartCat was about US index investing when you come in.

I really doubt if the original guy whose question started this debate was thinking of Hegde funds or PMS as an alternative to Index funds. The debate was always about Index Funds vs Actively managed Mutual funds.

Read the comment about Nifty 50 in the same vein as your comment about S&P 500. Its an example. I know what we are discussing here.

I did not point Hedge or PMS as an alternative to Index. I said Hedges and PMS who are invested in Indexes will get out, while the SIP investors would not. Hedge/PMS investing in Index or following an index VS passive funds tracking an index.

[navin]

India is a very different market from the US. SEBI still does not have the same teeth that the SEC has and even in the US, despite the SEC's "best efforts" there have been failings.

Mutual funds, Index funds, ETF, etc. are all just baskets of shares picked by some manager who most of you have not met leave alone understood. I can tell you one thing about all these mutual fund managers (at least in India). They are almost all sheep. Like penguins standing on the edge of an ice floe, they will wait for someone else to take a decision first and jump in when it "feels" safe.

Most managers are only looking for their own self-interest. They prey on people who think buying a "share" or a "basket of shares" is a good "investment". They prey on people who cannot make the time and do not have the inclination to read balance sheets, cash flow statements, directors reports, etc.

They sell the concept that if you buy "this basket of shares" the odds of all of them failing limits any sudden loss.

Study the business. Buy the Business. If you do not understand the Business (for example I do not understand all these internet businesses) do NOT buy the business.

If you cannot make the time or do NOT have the inclination to study businesses in-depth, find someone you trust who can. In India, there are very few people who are both worthy of your trust and have this capability.

Every person I know who has had success has:

• Stayed in the market for 2 decades or more
• Not been swayed by greed or fear
• Made it a point to understand each business they have invested in

Over the past 4 decades, I have seen more people lose fortunes than make them.

[carboy]

Originally Posted by navin

Mutual funds, Index funds, ETF, etc. are all just baskets of shares picked by some manager who most of you have not met leave alone understood.

Index Funds & Index ETF aren't a basket of shares picked by a manager of some AMC. They track the index. The manager cannot pick & chose shares. He has to blindly track the index. An Index Fund or Index ETF doesn't even require a manager. It's run by a computer program - the manager is mostly there just for name.

[saket77]

@Navin: When I started my career as a equity research analyst under a prominent fund manager, he used to say this every time to me. That if you cannot understand the business of a company enough and break it down as simple like if it’s a kirana store, you are not yet ready to write the research report. So true. Another mantra that he shared: when in doubt, stay out.

[pradkumar]

I have not invested in any international equity funds so far. I want to hedge my risk by investing in one fund at least. I am looking at US stocks mostly.

1) Parag Parikh Long Term Equity has 35% of its portfolio in US stocks. What are the other options available other than Parag Parikh Long Term Equity?

2) I was also looking at other options that have complete exposure to US stocks such as ICICI Prudential US Bluechip Equity Fund (launched in 2012), Nippon India US Equity Opportunities Fund (launched in 2015), and Motilal Oswal NASDAQ 100 ETF (launched in 2011). Despite these funds being there for quite some years, none of them are rated by Value Research or Morning Star India. More importantly, all these funds score High on the Riskometer. How does one proceed in such a case?

3) Does an ETF make more sense than an equity fund in this case?

4) What are the tax implications of an international equity fund that has more than 35% of its portfolio in US stocks. I read in Economic Times that they are treated just like debt funds. Is that correct?

What has been your experience if you have invested in international funds? Look forward to your valuable inputs.

Thank you,

Pradeep

[pradkumar]

I created a dummy portfolio of international funds on value research to find out the tax implications. They are treated like debt funds. 30% tax, irrespective of tax slabs, if one exits before 3 years. After 3 years, 20% with indexation benefits.

Originally Posted by pradkumar

4) What are the tax implications of an international equity fund that has more than 35% of its portfolio in US stocks. I read in Economic Times that they are treated just like debt funds. Is that correct?

[navin]

Originally Posted by carboy

Index Funds & Index ETF aren't a basket of shares picked by a manager of some AMC.

And who do you think picks those top 30/50/100 shares? They are selected based on market capitalization with little regard to liquidity. India's shareholding is not as diverse as the US or other more developed markets. In India there is very little "free float" and a great majority of the capital is held by promoters, institutional funds, and other "till-death-do-us-part" type investors.

ETFs can be traded easily but Index Funds aren't as liquid.

Originally Posted by saket77

That if you cannot understand the business of a company enough and break it down as simple as if it’s a Kirana store, you are not yet ready to write the research report. So true. Another mantra that he shared: when in doubt, stay out.

Hallelujah! I have seen good people get in so deep that they have had to sell the apartment they live in and move to a suburb just to pay off their creditors.

As a rule, when people ask me anything about the stock market, I try and dissuade them. Most of them are entranced by dreams of easy money that the fund managers sell to them.

I will not say all mutual funds are terrible. There are several that are quite good. What I would caution is to check the long term (at least 5 years) performance of any fund being sold to you; especially if you can track them through any crisis such as the 2008 meltdown.

I would demand to meet the fund manager and see how long he has been with the fund house and how long he has been managing the fund and what did he do before he came to manage this fund. I would brush on some accounting basics (especially cash flow and P&L statements) and some elementary macroeconomics and pepper him with questions and what-if scenarios.

I am sorry to rain on everyone's parade but I'd rather do that and be the bad guy than see young people lose money because they did not take the time to do their homework.

If on the other hand, you are willing to dedicate the time and energy, you can build quite a nice nest egg and/or inheritance for your children. Just be aware that it will take time, patience, and discipline.

[carboy]

Originally Posted by navin

And who do you think picks those top 30/50/100 shares?

Not the manager of the fund.

Originally Posted by navin

ETFs can be traded easily but Index Funds aren't as liquid.

Not true. Index Mutual Funds (non-ETFs) are fully liquid. The AMC liquidates it & transfers your money as per the NAV. There is no question of trading.

[navin]

Originally Posted by carboy

Not the manager of the fund.

Would you not prefer to pick the stocks yourself? Why let someone else decide?

The current BSE 30 has the following:
HDFC Bank
Reliance Industries
HDFC
ICICI Bank
Infosys
TCS
ITC
Kotak Mahindra Bank
L&T
Axis Bank
HLL
SBI
Bajaj Finance
Bharti Airtel
Maruti Suzuki
Asian Paints
Indusind Bank
HCL Technologies Ltd.
Nestle (aka FSL - Food Specialities Ltd).
Mahindra & Mahindra
Titan Company Ltd.
UltraTech Cement Limited
Tech Mahindra Ltd.
NTPC Limited
Sun Pharma
Power Grid Corporation
Bajaj Auto
ONGC
Tata Steel (TISCO)
Hero MotoCorp (Hero Honda)

Do you feel as strongly about ONGC as you feel about Hero Honda? If not then why carry as much of ONGC as you are carrying Hero Honda? I am not even getting into several great scrips that are not in the index. Maybe you feel that you would not like to own several of the stocks that are part of this index?

[carboy]

Originally Posted by navin

Would you not prefer to pick the stocks yourself? Why let someone else decide?

What I am disputing here is your statement - "Mutual funds, Index funds, ETF, etc. are all just baskets of shares picked by some manager". Index Mutual funds & Index ETFs are not. Whether I want to decide or not is irrelevant to that.

[navin]

Originally Posted by carboy

What I am disputing here is your statement - "Mutual funds, Index funds, ETF, etc. are all just baskets of shares picked by some manager".

In the end, it is who you define as "a manager". For me, anyone who is not me is a manager. If I am going to invest my hard-earned money in anything, I would like to have 100% control over the decision. I would like to make time to study what I am investing in. Because when I am going to invest, I intend to stay invested for at least 5 years sometimes that may become 10, 20, 30 or even 40 years.

In the end Index funds like mutual funds are both "baskets". It's like getting a basket of fruit and includes pineapples and oranges but you prefer pears, peaches, and strawberries.

If you like pears, peaches, and strawberries why buy anything but pears, peaches, and strawberries?

Now there are some "good" mutual funds for sure and there are some "good" managers as well. If you are going to invest your money in a "basket" at least have some control over the "basket" by having some understanding of the manager, the fund and the fund house. I am not going to share names because doing that carries with it a liability. Also if you anyone is going to invest in a share or fund, I'd rather they do so after doing their own research.

Be "invested". Otherwise, it is all just speculation.

[JMaruru]

Originally Posted by navin

I am not going to share names because doing that carries with it a liability. Also if you anyone is going to invest in a share or fund, I'd rather they do so after doing their own research.

Be "invested". Otherwise, it is all just speculation.

Please share the names for the benefit of other members. You can always put the below 'disclaimer' as part of the post.

Disclaimer:
Investing in equity and debt funds or ETFs is fraught with market risk. All posts on this thread are opinions only. Please do your own research or consult a SEBI registered financial advisor before investing.

[saket77]

This post is not directed towards you. But for general discussion with some caution to newbie investors.

Actually the problem with recommending scrips are many. First, it can genuinely be a bad call. Nobody would like to take that risk that can create a bad name in public, especially when working without a fee honestly. Second, fundamentals of a company can change quickly, especially during the results season. If someone suggests a scrip casually, and the fundamentals change negatively, the one who suggested might not remember you to give you an exit call. And the investor would be left in lurch making losses and blaming the one who suggested that stock. Thirdly, a lot of investors, especially after the recent awareness drives of mutual funds or asset management companies now have unrealistic targets. This is specially true for people who have started investing in the recent years. Say last 6-7 years. Markets can be much more cruel than what we have seen in the recent times which I would say is still a bull run. Many investors think that’s the way market works. Hence they expect unreasonable returns over their investments.

Now say for example, markets fall by 20%. But stocks recommended by me fall by 10-15%. That was a good portfolio I would say. But this is a loss for a layman investor who will blame the fund manager for this loss.

[JMaruru]

Originally Posted by saket77

Actually the problem with recommending scrips are many.

First things first, It's NOT asking for recommendation. Second, this is NOT about the scrips. This was about MF plans. It's NOT a call to buy them. Its like his thought process/rationale behind buying the same. That's about that.

[saket77]

Originally Posted by JMaruru

First things first, It's NOT asking for recommendation. Second, this is NOT about the scrips. This was about MF plans. It's NOT a call to buy them. Its like his thought process/rationale behind buying the same. That's about that.

Yeah right. Scrips running in my mind. Over to you guys.