Investing in Passive Funds
Don’t feel like tracking stock markets every day, but still want to invest?
Planning for long term investing rater than quick returns/risk? Passive funds may be the best way for you.
Though active funds are a very popular avenue for both novice and experienced investors in India, investing in passive funds is trending in recent past. Active funds are those where fund managers try to beat the benchmark by selecting stocks by doing his/her own research.
However, in 5 yr period, 80%+ of large-cap fund managers have failed to beat the benchmarks. Benchmark indexes are typically selected based on the stock category from which the fund manager selects the stocks (Eg: for a fund which invests in mid cap stocks, Nifty midcap 150 would be appropriate benchmark). These active funds are the Mutual Funds (both regular and direct) you hear a lot in advertising (eg: mutual funds sahi hai).
Further to failing to meet the index returns, since these funds are actively managed by a person or a team, a higher expense ratio is associated with it. Higher expense ratio decreases investor wealth furthermore.
Passive funds: Alternatively investors can invest in passive funds and decrease the cost due to its lower expense ratio. There are two kinds of passive funds.
1) Index mutual fund or 2) Exchange traded funds (aka ETFs)
Index mutual funds try to replicate the returns of Index, but it still has a higher (generally) expense ratio than ETFs. However, in ETFs, since there is not much manual intervention the expense ratio is less and it helps you boost your returns.
Multiple index MFs and ETFs are available to invest in India (eg: Nifty50, Nifty100, Smallcap, MidCap Nasdaq100 etc). Typically most funds in this category are liquid.
Investing in ETFs is very easy: If you already have a Demat account, you can use your existing Demat account to buy ETFs in the same way as you buy stocks. Once bought, the EFTs would be credited in your Demat account and you can sell them in the live market. As ETFs by definition can be bought and sold on exchange, you would know the price at of transactions immediately, unlike Mutual Funds.
In addition to convenience, ETFs also provide a variety of options to invest in. ETFs are created based on different categories of companies/industries/markets such as consumption (FMCG), infrastructure, IT, Volatility, PSU Banks, Hang Seng, NASDAQ etc.
However, one should check the liquidity of an ETFs on stock exchange before investing. Further, as stocks, different ETFs would have different risk/return tradeoff. One should invest based on his/her risk appetite.
After immense research, we at Finso created multiple portfolios with the help of ETFs. These portfolios are created with different ETFs/weights to give you an option to select the one that suits your risk/return profile.
Check out these portfolios now and start investing with peace at mind.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. Nothing in the site constitutes professional and/or financial advice.