I must say, I was pleased to see the headline in the Economic Times talking about investing in index funds (article link). And really shocked they mentioned an allocation of 25% to passive index funds. When people ask me for investment advice, I usually roll out the passive index fund speech and literally with 14 seconds people just tune out. Why? Because passive index funds (or ETFs) are boring to talk about.
It’s more exciting to talk about some hot-shot fund manager that someone has found that can outperform the markets. Remember Prashant Jain of HDFC who had the HDFC Top 200? Years ago, he WAS the talk of the town and basically was the hot shot who ran one of the best performing mutual funds. But, it was renamed Top 100 and the fund is still struggling with performance. The reason is because as a fund gets bigger and bigger they need to deploy that money and finding opportunities that outperform the general market are tougher to find.
I remember an investment professional once told me that index funds don’t work in emerging markets like India. That is absolutely garage. Most financial advisors and anyone on CNBC-TV18 will never talk about index funds or ETFs because the commissions are so low. Did you know the largest mutual fund in India is the SBI – ETF Nifty 50 at over Rs. 51,800 Cr. and the expense ratio is only 7 bps that is friggin’ crazy talk.
The tide is turning and more people are looking at these passive index funds because if you are not actively tracking the market then these instruments are great. Investing in a passive index fund is a general bet that the market/economy will do well and that’s pretty much the future of India.