Watch my talk on index investing: Can we get higher returns with lower risk?

Published: June 23, 2018 at 7:49 am

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Last week I gave a talk on index investing and market timing at the monthly meeting of the Tamil Nadu Investors Association. This is a private recording of the index investing part. We have already started the discussion on the marketing timing part with: Do we need to time the market? More on this will follow next week.

This talk on Index investing is a compilation of results published earlier. Before you head to the video, a few considerations:

1: The goal of a fund manager is to beat the benchmark the fund house has chosen (not the benchmark we choose to compare performance). So choosing a different benchmark and expecting the fund to beat it is unfair

2: It is an irrefutable fact that fund houses have managed to beat their chosen benchmarks both on an absolute (higher return) and risk-adjusted basis (higher return for a given level of risk). It is also an irrefutable fact that active mutual funds have managed to lower volatility compared to index funds. To discard this as unnecessary is both premature and immature.

3: Whether the above trend will continue or not is anybody’s guess. To assume that it will not is like implicitly believing that we can predict market movements.

4: Markets are neither “efficient” nor “mean reverting” and is not the reason why indexing will do better. Read more:

The 80/20 rule: Making sense of richest 1% Indians owning 58% wealth!

Fat Tails: The True Nature of Stock Market Returns: Part 1

Fractals: The True Nature of Stock Market Returns: Part 2

5: Expecting fund managers to beat indices on returns alone, forgetting risk is immature.

Index investing options in India

6: Worrying about mutual fund expenses and assuming using a cheaper index fund will be better requires additional qualifications on the part of the investor as discussed in the video.

7: Index fund or active fund, systematic risk management is essential Active mutual funds offer an additional layer of risk management. It is okay to discard that as unnecessary, but the investor has to make up for it. Can you?

8: Active mutual funds come with unquantifiable risks: human management. The primary reason for indexing is to state: I don’t dont want this human element in my portfolio. I will invest as per a fixed set of rules associated with the index construction.

Now, I don’t care whether you use index funds or prefer active funds. All I am saying is choose either way after evaluating all sides impartially. Do not start indexing because WB said so or Bogle said so.  Evaluate facts. If you cannot or if you won’t, admit that you have taken a leap of faith.

Index Investing Resources at freefincal

List of Index Mutual Funds and ETFs in India: What to choose and what to avoid

How ETFs are different from Mutual Funds: A Beginner’s Guide

Index Investing: advantages and disadvantages of being a passive investor

Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?!

Evaluating the Nifty Next 50 as an Index Fund

The NIFTY 100 Equal Weight Index As a Mutual Fund Benchmark

How new stock investors can quickly start investing using NIFTY Multi-Factor Indices

Are Nifty Smart Beta (strategic) Indices better than the Nifty Next 50?

Warning! Nifty Next 50 is NOT a large-cap index!

Nifty 50 Equal Weight Index vs Nifty 50: Does equal weight result in more returns?

Nifty Low Volatility 50: A Benchmark Index to watch out for

Nifty Strategy Indices as Mutual Fund Benchmarks

 Can we get higher returns with lower risk?

Have a good weekend.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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