Portfolio check required

[vinvest]

1) HDFC Top 200 Fund (G)
Lump Sum: Rs 300000/- in January 2010
SIP: Rs 50,000/- every month there after

HDFC Top 200 has an expense ratio of 1.80%. It probably covers around 75% of the NSE Market Cap.

Benchmark Nifty ETF has an expense ratio of 0.5%
Benchmark Nifty Junior ETF has an expense ratio of 1.0%

Both these put together cover 70% of the NSE Market Cap & would have an expense ratio of 0.75% - i.e. less than 1/2 the expense ratio of HDFC Top 200.

However, you can't do a SIP in an ETF? Or can you?

 

[palka]

@VINVEST; You have observed correctly the difference in Expense ratio. In fact HDFC Top200 has one of the lowest expense ratios among actively manages funds. ETFs have a lower expense ratio as they are passively managed. Actively managed funds e.g HDFC Top 200 has to sift through hundreds of stocks, and generate reams research reports to find suitable scrips to invest in. Passively managed funds (ETFs, Index funds) just have to buy the index. Hence they are cheaper. In fact in the US, there are a number of ETFs whose Expense ratio in even less than 0.1% . Some of those ETFs cover more than 99% of the US stock market. Vanguard Total Stock Market ETF has net assets of approx Rs 70,000 crore.

ETFs are bought and sold in the stock market. So you cannot have a SIP in an ETF. That leaves you with two options.

1) every month you buy the ETF of you choice on a fixed date.
2) start a SIP in an INDEX fund :clapping:

Happy investing

 

[vinvest]

@VINVEST; You have observed correctly the difference in Expense ratio. In fact HDFC Top200 has one of the lowest expense ratios among actively manages funds. ETFs have a lower expense ratio as they are passively managed. Actively managed funds e.g HDFC Top 200 has to sift through hundreds of stocks, and generate reams research eports to find suitable scrips to invest in. Passively managed funds (ETFs, Index funds) just have to buy the index. Hence they are cheaper.

I know - that's why I feel it's doesn't make sense to select a fund like HDFC Top 200 which has a higher expense ratio than a passive fund, but has aims similiar to a passive fund.

In fact in the US, there are a number of ETFs whose Expense ratio in even less than 0.1% . Some of those ETFs cover more than 99% of the US stock market. Vanguard Total Stock Market ETF has net assets of approx Rs 70,000 crore.

You don't need to tell me I have been a Vanguard Customer earlier.
I have been waiting for a long time for Vanguard to come to India. Unfortunately it doesn't look like it's going to happen anytime soon - I posted this in another forum - http://www.e-investing.in/showthread.php?t=4089

 

[rajivnc]

2) start a SIP in an INDEX fund

What all are the INDEX funds available in India ?

 

[vinvest]

What all are the INDEX funds available in India ?

http://new.valueresearchonline.com/funds/h2_typecomp.asp?type=1&objective=23

The 2 things to look for in an index fund is
- Expense Ratio
- Tracking Error - your Index fund should *NOT* outperform or underperform the Index it's tracking.

 

[palka]

Unfortunately it doesn't look like it's going to happen anytime soon

It is unfortunate that we do not have a single Index fund in India with an Expense ratio < 0.75%. I guess that Indexing is yet to pick up in India, about a third to half of diversified funds outperform the Index in the short term (1-2 year ). Fidelity, which runs cheap Index funds in the US, has not yet launched any Index fund here.

 

[vinvest]

It is unfortunate that we do not have a single Index fund in India with an Expense ratio < 0.75%.

The Benchmark Nifty ETF has an expense ratio of 0.5%. I think that's the lowest we have here. The Benchmark Nifty Junior has 1% & the Benchmark CNX 500 has 1.5%.

 

[palka]

But in case of investing in ETFs we have to pay brokerage, which pushes the cost up. In Index MFs brokerage does not apply. That leaves us with a couple of Index funds with expense ratio of 0.75%. IMHO benchmark CNX500 with its 1.5% expense ratio is way to costly, defeats the basic purpose of indexing.

 

[vinvest]

But in case of investing in ETFs we have to pay brokerage, which pushes the cost up.

Yes, true. But it also depends on how long you hold the ETF. If you are holding it for 1 year, it becomes very significant. If you are holding it for 10 years, then the brokerage becomes negligible.

That said, I invest through ICICI Direct - since I trade less than 10 lakhs a year, I get charged 0.75% as brokerage. What alternatives can I look at for a lower brokerage. I think Reliance Money charges the lowest (don't know how much). But I have faced no issues with ICICI Direct over the last 3-4 years. So I was wondering if it's a good idea to switch.

 

[pavvu_kk]

@vinvest - If you are happy to stick with index and not be worried about beating it, you are on the right path. I believe HDFC Top 200 is one of those funds that has consistently beaten the index.