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[palka]

@vinvest: I use ICICIDirect as well. I pay flat brokerage of 0.55% irrespective of volume. You can opt for the same.

 

[vinvest]

@vinvest: I use ICICIDirect as well. I pay flat brokerage of 0.55% irrespective of volume. You can opt for the same.

I didn't know this option was available. I changed my plan at ICICI Direct. Thank you for the tip.

About expense ratios of index funds in India, one reason I think they are so high is because they pay a lot of commision to the trading companies (ICICIDirect etc). Not just when when you buy but also through the term you hold the funds. That probably adds a lot to the expense ratios.

Abroad, you can go to the Vanguard site & buy directly from them using netbanking & sell similiarly. And that's what a lot of people do. Hence Vanguard is able to contain their expenses.

 

[palka]

One major cause of higher charge in India , I feel , is the low asset size that these funds manage. There is no fund with an AUM >Rs 500 Cr. Only five funds have AUM > Rs 100 Cr. When people realise that they cannot predict which funds are going to beat the Index, then we can expect larger amounts invested in Index funds. May be then the larger size and more competition will bring down costs . But that is probably a few years away .

 

[milind]

One major cause of higher charge in India , I feel , is the low asset size that these funds manage. There is no fund with an AUM >Rs 500 Cr. Only five funds have AUM > Rs 100 Cr. When people realise that they cannot predict which funds are going to beat the Index, then we can expect larger amounts invested in Index funds. May be then the larger size and more competition will bring down costs . But that is probably a few years away .

Unlike in US, there are large number of MFs in India which beat index. The only advantage of sticking to index funds is if you want to move the money in and out of market in an attempt to time the market. Longer term investments here will do better with managed funds.

-- Milind

 

[vinvest]

Unlike in US, there are large number of MFs in India which beat index.

If indeed true, what do you think is the reason for this?

 

[palka]

Unlike in US, there are large number of MFs in India which beat index.

No doubt about that. Indian market is probably not that 'efficient' as the US markets. But the problem is which funds will beat the index in next 20-30 years that is impossible to predict now. That is where index funds come in.

Even in the US there are equity funds that beat the Index quite comprehensively. And the amount invested by retail investors still favors actively managed equity funds. But many large and very investors like pension funds and many retail investors invest a significant amount in Index funds.

 

[milind]

No doubt about that. Indian market is probably not that 'efficient' as the US markets. But the problem is which funds will beat the index in next 20-30 years that is impossible to predict now. That is where index funds come in.

Even in the US there are equity funds that beat the Index quite comprehensively. And the amount invested by retail investors still favors actively managed equity funds. But many large and very investors like pension funds and many retail investors invest a significant amount in Index funds.

Here historical performance is not all that poor predictor if you look at 5+ year history. Funds like Reliance Growth, HDFC Equity have been excellent performers and good probability that they will continue to be. Same manager being around for several years, proven performance in good and bad phases of market are some of the things I look for.

-- Milind

 

[drsambu123]

If indeed true, what do you think is the reason for this?[/QUOT

There are many reasons????
I guess one of the reason

In india still many retail investors donate(lose by erratically investing/trading in stocks or derivatives) money to the market

 

[vinvest]

There are many reasons????
I guess one of the reason

In india still many retail investors donate(lose by erratically investing/trading in stocks or derivatives) money to the market

So basically you are saying that Indian retail investors aren't as smart(or disciplined) as the US investors?

Even if true, how exactly does this affect the managed funds vs index funds performance?

 

[pavvu_kk]

If indeed true, what do you think is the reason for this?

One of the reasons is because stocks that get into index are based on market-cap (and some other wrong reasons). MF invest not just based on cap but also on the underlying businesses. Atleast, that is what they are supposed to do and quite a few of them do the same; and these are the exact ones that beat the index.

In effect, the criteria used to include stocks into indices is not performance-based. And returns from stocks is due to businesses doing well and not due to their market caps. Hence you see the difference.