In this article, we discuss whether there is a factor index that has consistently lower risk than broad-based indices or market capitalisation weighted indices like Nifty 50, 100, 500, etc. A factor index is an intermediate between an active and a passive strategy. It is rule-based but also passive. The catch is, the rules tend…

It is well known that passive fund enthusiasts recommend an index fund that captures as much of the market as possible – large cap, mid caps, small caps. This gives you complete market participation at low cost. According to the NSE, “The Nifty 500 Index represents about 92.29% of the free float market capitalisation of…

The common perception is that the index funds have minimal portfolio churn and a lower turnover ratio.  But what if the index that they are mimicking itself churns its components by more than 65% every time?  By their construction, the index funds tracking such an index also need to do the same, leading to high…

There is a misconception, even among experts, that a low tracking error for a passive fund (index fund or ETF) implies the fund’s returns closely match the benchmark. This is not true. What is a tracking difference? This is the fund return minus the benchmark total return over a period. This will typically be a…

There is a considerable amount of debate about active vs passive investing. The truth is, it is a tertiary concern. You need to have a proper investment plan in place. If this is done, you need the conviction to implement it and stay the course. Then it matters little if you choose active or passive…

Here is a step-by-step guide to selecting an index. 1. Where and how you invest does not matter if you do not have a proper investment plan. The right return expectation, the correct initial asset allocation, an excellent risk-management strategy, systematic investing, systematic increase in investing and periodic reviews. The freefincal robo advisor tool can…

We have recently discussed the revival in investor interest in Nifty Next 50 – Nifty Next 50 outshines Nifty 50 by 41% – Time to buy? As pointed out, in 2018, many investors started investing in Nifty Next 50 index funds only to be frustrated by its performance over the next five to six years. Over…

Over the past few weeks, more and more investors have asked us, “Is this a good time to invest in a Nifty Next 50 index fund?” A discussion. The revival in interest is because of recent outperformance. Over the last year, Nifty Next 50 outperformed Nifty 50 by 41%! Long-term readers may know that we…

This is a talk I gave in the bi-monthly meeting of the Tamil Nadu Investors Association (SEBI recognised) on March 24th 2024. I have recorded it separately in two parts. I have already published parts of the talk as articles since then. Active Mutual Funds Outperformance Consistency Report (March 2024) ETF or Index Fund? Look…

Futures and options trading on Nifty Next 50 commenced on April 24, 2024. Will this impact the index and, therefore, its passive investors (via index funds and ETFs) in any way? In particular, how will F&O trading impact the volatility and liquidity of the underlying index (or its constituent stocks in the spot market)? The…

Many investors assume that the lower the passive fund fee or tracking error, the higher the return. This is not always true. We dispel these notions using material for a talk we are preparing for. 1. ETF tracking errors published are non-representative.  All tracking errors are highly non-intuitive and hard for normal investors to appreciate….