[tbppjpr]

Originally Posted by SmartCat

As long as imports are more than exports, INR will continue to depreciate against USD. Going by past history, USD has appreciated by approximately 3.5% per year against INR over the past 20 or 30 years.

Can we defeat the INR depriciation by investing in something like Nasdaq ETF? We will be buying in INR so the question is will we also gain something on the currency-value front along side the typical fund gains?

[pradkumar]

My bad! I meant based on the ETF, and not tracked.

Originally Posted by carboy

Hmm. Didn't realise it tracks the ETF. I thought it tracked the Index.

[SmartCat]

Originally Posted by hondaford

The point is - an active fund manager cannot "consistently" beat an index over a long duration of time. If so, then why should we pay the active manager 1.5- 2% a year?

We were talking about American active vs index funds. Looks like Indian actively managed funds regularly beat the index. To understand why this happens, do check previous posts on this thread - there are huge differences between the structure of American indices and Indian indices.

Just yesterday, Valueresearchonline's Dhirendra Kumar wrote this article:

It's not yet time for index funds
https://www.valueresearchonline.com/...or-index-funds

Originally Posted by tbppjpr

Can we defeat the INR depriciation by investing in something like Nasdaq ETF?

There are many ways to give a boost to your portfolio because of expected INR depreciation:

- Invest in export oriented stocks (IT, Pharma etc) or IT/Pharma sector funds
- Invest in USA mutual funds
- Invest in Gold mutual fund (since Gold is priced in USD)

Historically, Gold has returned 10 to 12% per year. Make sure your allocation to these funds is not too high in percentage terms.

[hondaford]

Originally Posted by carboy

Hmm. Didn't realise it tracks the ETF. I thought it tracked the Index.

If it tracks the ETF, then what will be investing price & redemption price? Will it be the NAV of the ETF or will it be the market price of the ETF?

ETF tracks the index. It has a market price just like a stock - because it is listed on an exchange just like a stock. Ideally, its price will track very close to the index it is meant to replicate. Except for tracking error.

Now, the FOF - invests in the ETF. It is not listed - it has a NAV from the fund manager Motilal Oswal. Its NAV should closely follow the ETF (as it invests in the ETF). However, that may not happen because of issues such as liquidity. In which case, the NAV could be further away from the actual underlying ETF price.

Very complicated. Better to invest directly in underlying ETF if possible, and remove one layer if it does not add any value.

Originally Posted by SmartCat

We were talking about American active vs index funds. Looks like Indian actively managed funds regularly beat the index. To understand why this happens, do check previous posts on this thread - there are huge differences between the structure of American indices and Indian indices.

Just yesterday, Valueresearchonline's Dhirendra Kumar wrote this article:

It's not yet time for index funds
https://www.valueresearchonline.com/...or-index-funds

Thank you for sharing, Sir.

The reason why Indian fund managers are "so good" is explained in an article linked within the one you shared:

From the article:
But cottoning on to this shortcut, from February 1, 2018, SEBI decreed that all equity funds must benchmark themselves against total return indices rather than plain price indices. Given that dividends add about 1.2-1.3 per cent to the annual returns from indices such as the Sensex and Nifty on a yearly basis, this has whittled down one of the sources of spurious alpha for active funds.

In lay man terms, Indian fund managers were comparing themselves with indices 1.3% p.a lower due to exclusion of dividends, allowing them to look good. SEBI put a stop to this in 2018, and let us now see how they fare.

Indians are good, but if they are so much better than Americans at managing money then the Americans should just give us the money and go on vacation. Or may be a road trip

[SmartCat]

Originally Posted by hondaford

SEBI decreed that all equity funds must benchmark themselves against total return indices rather than plain price indices. Given that dividends add about 1.2-1.3 per cent to the annual returns from indices such as the Sensex and Nifty on a yearly basis, this has whittled down one of the sources of spurious alpha for active funds.

SEBI ruling regarding Total Returns Index is not just about future returns. It is about the past too. Mutual funds have to compare their past performance with Total Return Index (TRI). Note the previous screenshot from valueresearch that I uploaded - it says S&P BSE 250 Smallcap TRI

Indians are good, but if they are so much better than Americans at managing money then the Americans should just give us the money and go on vacation. Or may be a road trip

As mentioned before, Indian managers outperformance is not because they are some kind of super-heroes. It is because of external factors like index construction, low number of participants, low float of Indian stocks etc.

[SilentEngine]

Originally Posted by pradkumar

I was also looking at Franklin Feeder funds because the AUM is the highest at some 1300 crore. Not that the AUM matters so much, but gives you the confidence that there are some people in the same boat. The AUM of other international funds is anywhere between 300 to 400 crore. It makes you wonder whether people have given up on international funds already.

Anyway, the return of this fund is just around 12 to 16%. Makes you wonder whether taking a risk with rupee vs dollar appreciation and then the debt fund like taxation method is worth it. There is not much underlying data available to do some research. The more I look at it, the more confused I am.

From last couple of years, I have made some very small discretionary investments in FT US Feeder fund, mainly to test the waters. Main attraction is obviously that it's non-correlated to Indian markets most of the time (true for international funds in general) than the actual returns itself. I guess the key is to not invest too much in it and have a maximum allocation limit.

[carboy]

Originally Posted by tbppjpr

Can we defeat the INR depriciation by investing in something like Nasdaq ETF? We will be buying in INR so the question is will we also gain something on the currency-value front along side the typical fund gains?

Gold is another investment by which you can take advantage of INR depreciation.

Originally Posted by SmartCat

Yeah, I think many smallcap funds stop accepting new investors beyond a limit.

Do you have a source for this - that small cap funds have an upper limit?

[graaja]

Originally Posted by carboy

Do you have a source for this - that small cap funds have an upper limit?

I have been investing in Nippon Smallcap fund the past few years. From a couple of years back (I don't remember the exact timeline), they stopped accepting fresh lumpsum investments. They only take either SIP or STP.

Not sure if this is related to having an upper limit.

[SmartCat]

Originally Posted by carboy

Do you have a source for this - that small cap funds have an upper limit?

Originally Posted by graaja

Not sure if this is related to having an upper limit.

There is no 'upper limit' set by SEBI or AMFI . It is a voluntary decision taken by the fund house to protect their older investors. Otherwise, the fund manager would be forced to buy overvalued or illiquid stocks.

Lots of funds stopped investments during 2017 smallcap mania. They opened the doors to investors in 2018 after the smallcap crash.
https://www.livemint.com/Money/NZnkg...ut-should.html

[Naetik30]

As long as the investor knows how ETF and actively MFs work - everything is fine.

For ETF - The investor trades like how he/she would trade a share. You directly sell or buy from the bourses. A seller can sell, if there is someone else buying it. The buyer is not a fund house. So, the primary risk here is the liquidity of the ETFs you hold. i.e., if you want to sell, and there is no one to buy it - your order remains unsold. Better luck some other day. Even, if the seller sells at 50% discount and still there is no one to buy, the same applies.

For actively managed MFs - The investor deals with the fund house. The fund house has to buy back the units, when the investor wants to sell it. The price will be based on the NAV, but the fund house has to redeem the units from the investor.

In India, for ETFs, the liquidity is the problem. Otherwise, practically there is no difference.

[SmartCat]

Originally Posted by Naetik30

So, the primary risk here is the liquidity of the ETFs you hold. i.e., if you want to sell, and there is no one to buy it - your order remains unsold. Better luck some other day. Even, if the seller sells at 50% discount and still there is no one to buy, the same applies.

The fund house that launches the ETF is supposed to hire "MARKET MAKERS". It is their job to provide liquidity. They make money on bid-ask spreads. That is, their bid price will be slightly lower than actual NAV and ask price will be slightly higher than actual NAV.

What is the role of market maker for ETFs?
https://www.rbcgam.com/documents/en/...r-for-etfs.pdf

Investors in an ETF should put a "limit" order when entering trades. Market makers will honor the trades by end of the day. But if there is poor investor interest in an ETF, the market makers will no longer be interested in providing liquidity. If there is zero liquidity, you can still contact the ETF fund house and redeem your investments

[carboy]

Originally Posted by SmartCat

Investors in an ETF should put a "limit" order when entering trades. Market makers will honor the trades by end of the day

Limit order at what price? Anyway, I put limit orders for all buy/sell I make on all equities & ETFs

[SmartCat]

Originally Posted by carboy

Limit order at what price? Anyway, I put limit orders for all buy/sell I make on all equities & ETFs

Usually, the mid-price between bid and ask price is the "right price" for ETF. When the index is calm, enter around the mid-price and see how it goes.

If you want quicker execution while selling, enter slightly lower than mid-price (so that it benefits the market maker). And vice versa. When buying, enter slightly higher than mid-price between bid/ask price. For eg, take KOTAKNIFTY ETF.



If you are buying, enter limit order for 118.15. If you are selling, enter limit order for 118.1

[carboy]

Originally Posted by SmartCat

Usually, the mid-price between bid and ask price is the "right price" for ETF. When the index is calm, enter around the mid-price and see how it goes.

My question was in the context of "Market makers will honor the trades by end of the day" - are market makers are bound to honour the trades by EOD at some particular range?

[nasa_hubble]

Originally Posted by SmartCat

Good point. As I have pointed out before, an index can be stuck in a broad range for 4 to 12+ years. Here is the smallcap index, back to 2008 levels. Meanwhile, it is almost impossible to find an actively managed mid or smallcap mutual fund with zero returns in the past 12 years.

Agreed. Data does not lie. One thing that i think we need to get out of the way is that Index investing is beneficial when you own the whole market and not invest in piecemeal index products like a small cap index or a sector index.

If a person who wants to be a true passive investor one should invest 70% in Total stock market fund and 30% in Total bond market fund and then rebalance once a year. All other products will not see a person gain much. If one is doing anything else he is investing in a passive fund but not doing passive investing.