[gautam109]

Originally Posted by ashokrajagopal

See, the passive investing makes sense only when a small percentage of people are doing it.

Yes. This is absolutely the point. To get slightly academic, passive investing works on basis that markets are "perfect", at least in the long run & beating the markets is futile. However this theory is premised on fact that alert active investors will spot any imperfection & rush to act on it, thus making it evaporate and keeping markets perfect.
Example: A stock trading far above its "fair value" - investors will rush to sell/short it and price will come down to fair value quickly. Any "breaking news" will also quickly get "priced-in" to stock price in the same way. Hence the theory that Mr. Average Joe is better off investing in passive funds, paying less fees and reaping "market" returns. And that no fund manager can consistently "beat the markets".

But, imagine a world where passive fund flows crowd-out active funds/investors by a factor of 3x, 4x, 5x or more?

When this happens, active money "loses its voice". Actions of passive fund - with thier much larger weight of money - start dictating stock prices. A passive fund blindly invests in all stocks of thier chosen "index". If a company suffers an adverse event, normally active fund managers would rush to sell and beat down the price. Passive fund managers would get the company at that "beaten-down" price. But that won't happen anymore! as active fund managers aren't moving the markets anymore. Passive funds don't sell at all, in fact keeps buying each time new money flows into the fund and keep prices shored up.

The party stops only if and when the index-manager (example BSE for Sensex, NSE for Nifty etc) decides to remove the stock from index or reduce its weightage.

Now Index managers have historically used stock price movements (market caps of companies) as a trigger for any such actions. It is not an index manager's job to decide "fair value" of a company. So if stock prices are stable (thanks to passive fund flows), they index managers may not take any action. (Also note the level of power than an index managers gains here. Billions of dollars get allocated based on thier judgement alone!)

Another scenario:
An Index has room for a limited number of companies. Imagine the Nasdaq-100 index just after a Google or Facebook IPO-es. These new listed behemoths have to be brought into the index. Which means some smaller index companies get booted out entirely and others see their weightage cut, for no fault of theirs. In fact they may have great prospects. As all passive investors start selling these stocks (they need to mirror the index), the price tanks.
Normally active investors would start buying and hold prices up. But they are now small-fry and swamped by the tsunami of passive fund selling.

So, the ultimate irony:

1. Passive fund performance relies on active funds dominating the markets and keeping stock prices "honest" (i.e. reflective of underlying business fundamentals)
2. As passive funds' share of stock market activity grows, the markets are at risk of getting more and more skewed. Creating more and more opportunities for active investors.
3. However, sheer weight & influence of passive fund money means that active investors may suffer horribly for a while, as market stay divorced from "true value" of stocks for a long time.

[gautam109]

Originally Posted by ValarMorghulis

How about Gold ETFs; are they a good investment? I understand Gold is at an all time high now, but how good are these ETFs?
I am in mutual funds and equity market already and was thinking of venturing in this. Any pointers would be appreciated. Thanks

Gold ETFs are a good way to invest in Gold - safer & better than buying the physical metal. They will pretty much mirror Gold returns with small variations. SBI Gold ETF - Direct Plan is a good option - has a low expense ratio, i.e. less of your money invested gets eaten up by fees/charges. I always choose "DIRECT Plans" which you can opt for from Fund's website or by visiting thier nearest office and filling a form. The regular plans charge higher fees which they pay to MF distributors / marketing agencies.

If intent is to buy up gold in small amounts to save for making jewellery in future, then physical gold from a trusted jeweller or bank-issued gold coins might make sense. (You can always save gold via Gold ETF purchases, then sell the ETFs in future and use that money to buy Gold-jewellery; but you'll incur capital gains tax when you sell the units. But I believe (not sure) you can give physical gold to your jeweller, get them to charge you only "making charges" and avoid tax as you've not "sold" the gold.)

As regards gold prices, no one (incl so-called experts on TV) can really guess what returns gold will give in future. To me, it looks bit overpriced right now probably due to all the negative news going around.
There are long periods in past when gold has given negative or near zero returns. For Example: Gold was at approx Rs. 3000 per gram in Sep/Oct 2012 and is now - 5 years later - at approx rs. 4300 per gram. A return of less than 8% per annum (You could have earned 8% from a Fixed Deposit, which is a lot less risky; gold had fallen below 2,600 in between, a negative return). (see this)

Another option is Sovereign Gold Bonds (SGBs) issued by Government of India. They too track gold prices and you get interest on top (where Gold ETFs charge fees, SGBs pay you!). The catch: Difficult to sell them before maturity. Total maturity period is 8 years, though there is an option to sell after 5 years (on specified dates only, I think the "window" opens once or twice every year). Gold ETF can be sold anytime - just like a stock - and money comes to you in two working days.

[carboy]

Originally Posted by gautam109

Gold ETFs are a good way to invest in Gold - safer & better than buying the physical metal.
Another option is Sovereign Gold Bonds (SGBs) issued by Government of India. They too track gold prices and you get interest on top (where Gold ETFs charge fees, SGBs pay you!). The catch: Difficult to sell them before maturity. Total maturity period is 8 years, though there is an option to sell after 5 years (on specified dates only, I think the "window" opens once or twice every year).

SGBs are a better option than ETF because you also get 2.5% or 2.75% of interest every year other than the appreciation of gold itself. And though they are less liquid than Good ETF, they are not totally illiquid. SGB trades in the secondary market & you can sell them anytime (no need to wait for 5 years). The market depth in the secondary market is low, so it may take a couple of days for you to find a buyer at a decent price & you may have to sell it below current SGB prices. And you can also buy SGBs from the secondary market - you don't need to buy them from the RBI. And because market is low depth, you can typically buy it also cheaper than what price you can buy from RBI.

[gautam109]

Originally Posted by carboy

SGBs are a better option than ETF because you also get 2.5% or 2.75% of interest every year other than the appreciation of gold itself. And though they are less liquid than Good ETF, they are not totally illiquid. SGB trades in the secondary market & you can sell them anytime (no need to wait for 5 years).

Agree. Important point that I missed adding (mainly to avoid making my already long post too tedious).

As you said, the problem with selling SGBs on stock exchange is they are generally at a discount to underlying value and there isn't a lot of liquidity - esp in certain counters. (I believe there are 10 different SGB series already).

Also agree that buying SGBs off the exchange can be a smart idea (take advantage of the discount + you can get an older series with higher interest and/or lesser time to maturity).

But for an average investor Gold ETFs of a large / reputed fund house are easier to trade - the NAV is published daily (don't have to "calculate" fair value which can be mystery to non-experts) and you cany buy/sell anytime, at close to the NAV, thanks to market makers appointed by the fund house.

Of course if one is okay holding till maturity / redemption window, and/or, one is comfortable trading SGBs over the exchange (Be patient & alert for good offers. And buy cheap so you are okay even if you're later forced to sell cheap), they are hands down better than ETFs.

Last note - wish the Government / RBI would look at publishing a daily NAV-equivalent (IBJA gold price + accrued interest) for SGBs and appointing market makers to make SGB counters more liquid and rational (very doable, would just need some structuring).

[bbhavan]

Originally Posted by SmartCat

Bottom fishing or timing the markets is easy if you set a few ground rules, and follow them with discipline.
[list][*]In your MF portfolio, set a debt mutual fund to equity mutual fund ratio, say 50:50. That is, if you have Rs. 10 Lakhs in equity mutual funds, you need to have Rs. 10 Lakhs in debt mutual funds too.

Good info, thanks.
I was thinking about investing in debt fund for quite some time, as all my equity investments are directly in to stocks. But I want to reduce the inherent volatility of the equity component. Some sort of stability is what attracted me towards the debt funds. I want your opinion on how to invest directly into these funds. Do I have to invest in multiple funds or a single fund is enough?, say for an investment of 50K monthly or it's multiples?
Pls note , I am looking for long term investment.
Thanks in advance

[SmartCat]

Originally Posted by bbhavan

I want your opinion on how to invest directly into these funds. Do I have to invest in multiple funds or a single fund is enough?, say for an investment of 50K monthly or it's multiples? Pls note , I am looking for long term investment. Thanks in advance

Check this post:

https://www.team-bhp.com/forum/shift...ml#post4756794 (The Mutual Funds Thread)

and this:

https://www.team-bhp.com/forum/shift...ml#post4757873 (The Mutual Funds Thread)

For Rs. 50,000 monthly investment, I would choose atleast 5 different debt funds and invest equal amounts in these funds.

[audioholic]

Is there any fund which invests mainly in startups? Could be either local startups(if they ever list) or global startups. I want to put a small part of my monthly fund budget to this if its available. If anyone has an idea on this please share.

[SmartCat]

Originally Posted by audioholic

Is there any fund which invests mainly in startups? Could be either local startups(if they ever list) or global startups. I want to put a small part of my monthly fund budget to this if its available. If anyone has an idea on this please share.

There is category of funds called AIFs (Alternative Investment Funds) that is equivalent to hedge funds. Some of these funds invest in startups. However, this investment vehicle is only for HNIs - minimum investment is Rs. 25 Lakhs.

[SmartCat]

Ladies and Gentlemen, please check exposure to Yes Bank in your equity and debt funds. Looks like Yes Bank is a goner.

Yes Bank: Govt caps deposit withdrawal at Rs 50,000
https://www.moneycontrol.com/news/bu...0-5007451.html

JP Morgan cuts Yes Bank target price to ₹1
https://www.livemint.com/industry/ba...411228656.html

[audioholic]

Originally Posted by SmartCat

Ladies and Gentlemen, please check exposure to Yes Bank in your equity and debt funds. Looks like Yes Bank is a goner.

Yes Bank: Govt caps deposit withdrawal at Rs 50,000
https://www.moneycontrol.com/news/bu...0-5007451.html

JP Morgan cuts Yes Bank target price to ₹1
https://www.livemint.com/industry/ba...411228656.html

Good pointer! Out of my entire portfolio, I had 16 rupees at stake on Yes bank Quite surprising as well as a relief after I saw that hardly any of my 10+ funds had investments remaining in the stocks of Yes bank.

[digitalnirvana]

Originally Posted by SmartCat

Ladies and Gentlemen, please check exposure to Yes Bank in your equity and debt funds. Looks like Yes Bank is a goner.

JP Morgan cuts Yes Bank target price to ₹1
https://www.livemint.com/industry/ba...411228656.html

Terrible news.
Is it worth taking a punt on Yes Bank shares at these (sub 3-4 rupees) valuations?

[SmartCat]

Here is the list of debt funds with large Yes Bank exposure
https://www.rupeevest.com/Mutual-Fun...oldings/132648

Originally Posted by digitalnirvana

Terrible news. Is it worth taking a punt on Yes Bank shares at these (sub 3-4 rupees) valuations?

Sure, why not . As long as you realize that it is a punt!

But remember that something like this happened in year 2004 - Global Trust Bank was acquired by Oriental Bank of Commerce. After the takeover, shareholders of GTB got nothing. Zero shares of OBC.

[carboy]

A friend of mine has got a lumpsum which he wants to put in Equity MFs. I have no experience with equity MFs, so can @SmartCat & other MF experts here suggest which MFs to invest in & how many funds to buy?

[thoma]

I've never done an SIP before. So I'm confused between OTM and biller options. Should I personally visit the bank or AMC for either of these?

[SmartCat]

Originally Posted by carboy

A friend of mine has got a lumpsum which he wants to put in Equity MFs. I have no experience with equity MFs, so can @SmartCat & other MF experts here suggest which MFs to invest in & how many funds to buy?

For a newbie, Index MF is actually a good first step. As a bonus, during global/local financial/geopolitical crisis, index funds usually fall the least and get back to new highs quickly.

Another option is to invest in hybrid fund that invests up to 65% in equities and 35% in bonds. These funds mostly invest in large cap stocks and government bonds. During crisis, government bonds go up in value because of flight to safety and because of likelihood of RBI lowering interest rates. A mix of stocks and bonds offers the best risk adjusted returns - look at VR Balanced TRI or "Hybrid: Aggressive Hybrid" returns across time. They fall less than equity funds, but sometimes offer returns equivalent to pure equity funds.



As usual, choose fund from top fund house, long history, large AUM and 3/4/5 valueresearhonline rating. The list of hybrid funds is available here:
https://www.valueresearchonline.com/...s&tab=snapshot