Skip to main content

Index Mutual Funds

Investors can benefit from the India growth story and the trend towards index investing in a systematic manner looks encouraging

 

INVESTORS have been worrying about the uncertain market scenario of the past one week. The question is whether we once again are nearing to a bubble stage. Personally, I have one core belief: neither pundits nor laymen have ever been able to predict market movements correctly in the short term, though like the weatherman, we keep trying.


   In my opinion, the best form of investing is to buy an index fund when you have money, and redeem it only when you require it really badly: or "like your grandmother bought gold" approach to investing. Is the Indian equity market really valuable at the current levels? Well, let's consider a few facts.


   In the short term, the stock markets move more on account of liquidity than fundamentals. It appears as though Indian markets will continue to attract international liquidity because India is not seen as overvalued internationally. The CNX Nifty is trading at 18x FY12 earnings, a shade below its all time high of 21x. But more interestingly, compare this with other indices. Nikkei is at 17x one year forward, and Japan is growing at 0.4% to our 8% or thereabouts.


   The Coal India issue has showed the appetite of investors for Indian IPO/FPOs and there is a pipeline of them in the offing such as PGCIL, ONGC, SAIL, IOC, PFC etc.


   In dollar terms, we have reduced returns year on year. The dollar returns for an FII were 20% year-on-year as compared to 27% absolute returns. Thus the market is not really very expensive for a foreign investor than it was a year ago. Of course, if the dollar appreciates dramatically, the investor would not benefit, but while it remains flat or goes downwards, as it should when compared to a rapidly growing economy like India, he can benefit substantially.


   There is no let up in the liquidity infusion worldwide and much of this liquidity will be chasing assets, such as commodities and, of course, stocks in growth economies.


   An interesting facet of this run up has been the limited participation of retail investors. Mutual funds have not seen strong inflows as they showed in 2006-2007 and retail volumes on the exchange have also been low.


   The apparent cautious approach of retail investors is partly because of the unprecedented volatility that they saw in 2008, but this is not the full story. In the past few years, the systematic investment plan has really come to occupy a significant place in investors' minds and the steady increase in the number of SIPs is witness to this. While SIP does not make for large numbers immediately, they augur well for future stability and this is heartening.


   There are two developing trends that are going to transform equity investing in India in the years to come – systematic investing and index funds.


   In the past, one of the problems with booms has been the proliferation of expert fund managers, who look very good as the market soars but rarely if ever, recover their past glory after a bust. This has made investors really cautious of betting big money behind the latest "Big Bull" or "Star".


   They have also seen that their SIPs often lose much less value than their lump-sum investments made during a boom. The answer to the problem is not to pick fund managers and the only way to do it is to invest in index funds.


   These funds cost less, and their NAV moves with the market; without holding cash, these funds avoid second-guessing the market and failing; they do not depend on the ability of anyone to pick stocks since they just replicate the index; and above all, you can be confident that your SIP will not be stuck in a fund with lots of bad decisions which will never recover.


   Over time, I hope that Indian investors can benefit from the India growth story as much as FIIs have and the trend towards index investing in a systematic manner makes me confident.

 

Popular posts from this blog

ICICI Prudential Dynamic Plan Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call     Leave a missed Call on 94 8300 8300   Leave your comment with mail ID and we will ...

Tax Returns: Myths and facts of filing your Tax Returns

THE fiscal year has ended and many choose to make tax-filling. Despite this being a regular, annual ritual, several tax payers have some misconceptions, some of which are listed below: Misconception No. 1 Filing tax returns is a complex and cumbersome process. I need a Chartered Accountant to help me file my tax returns. Contrary to popular belief, preparing and filing tax returns is actually quite simple. If you have a digital signature you can accomplish the entire process sitting at home on your computer thanks to the e-filing facility on www.incometaxindiaefiling.gov.in. Alternatively, you can submit the returns online, print a one-page receipt, sign it and drop it off at the income tax office within fifteen days of submitting the returns. No documents are required to be submitted with the receipt. However, if you want help, there are several third party service providers who offer tax preparation and filing services for a fee as low as Rs 200. Misconception No. 2 The interest I p...

Lump Sum or SIP?

Invest Mutual Fund Online     You have a lump sum in hand and you wish to invest in equity funds. However, you have heard a lot of talk about investing in equity funds through Systematic Investment Plans (SIPs) because they help average costs, ensure you do not ill-time the market, and help you invest in small sums, besides giving you many other advantages. So, should you invest the money you have in hand in one go, or let it remain in your bank account and then do an SIP? There is no harm in investing a lump sum amount. For all you know, compounding, over the long term, could work better with lump sum. However, make sure you fulfill all of these three criteria if you want to invest in one go. Else, SIP is the way to go. #1: You invest for the long term According to past data, ideally, if you have a time frame of 12 years or more, you can consider lump sum investing (provided you satisfy the other two conditions that follow). So, what is the sanctity behind 12 years? Is it because only...

Mutual Fund Review: Reliance Regular Savings Balanced

Reliance Regular Savings Balanced fund has shown great resilience during market crash After a shaky start, this fund has established itself as a strong contender in this space. In the past three years it has ridden the market well by not only delivering during the market run-ups but also displaying resilience during the crash. In 2008, it witnessed the second lowest fall among its category and last year it was amongst the top three performers with a return of 76 per cent (category average: 61%).   The poor underperformance in 2006 can well be credited to the low equity allocation of the fund, which stood at just over 10 per cent for only four months that year. Though the fund has the leeway to go up to 75 per cent in equity, it has never touched that limit. In fact, it has exceeded 70 per cent in just five months in its entire history. During the crash of 2008, the fund managers had no problem going right down to 54 per cent (equity exposure). Fund managers Omprakash Kukian and A...

Why credit history is critical?

Will you need a loan to buy a car or a house? Do you know why some people get their loans sanctioned quickly without any hassle, whereas others find that their approval is delayed or their application is rejected? If you want a loan, you will need to work to build a solid credit history because this can have a bearing on the ease with which you get loans. Read on to learn more about what is a credit history and how to build a good credit score. What is a credit history? Your credit history is a way of tracking your credit behaviour and habits — basically it shows how disciplined and regular you are when it comes to repaying your dues on loans that you have taken. It will show a complete record of your past borrowing and repayment record including details about any late payments or if you have defaulted on a loan. This track record is readily accessible to lenders and is used by them to when reviewing your loan application. Borrowers who have historically had a bad record of managing...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now