If you follow American Market, I am sure you shall find about Vanguard ( Or Mr. Jack Bogle) who introduced notion of Index Funds. Mr Buffet mentioned about following in his one of annual letter –
“If a statue is ever erected to honor the person who has done the most for American investors, the hands- down choice should be Jack Bogle,”
This alone highlights importance of Index Funds and how their operational costs help deliver staller returns over period of time.
But are Index funds good for all economies? I cannot say for sure.
Here is article in LiveMint that has some advice –
“They certainly have the potential to generate good returns for investors, but the consistency of index funds outperforming active funds over a long period depends on the maturity of the economy and the depth in the market. In developed countries, index funds tend to do better because most of the companies are at a matured stage and they have gone past emerging and growth phases. In an emerging market like India, there are opportunities for businesses to improve their efficiencies. The potential to invest in such companies will usually be more through active funds until these companies become a part of benchmark indices. Hence, prudently-managed active funds would have better potential to outperform index funds until Indian markets mature further.”
I have some questions on above article.
- Most companies enter Index when their market cap reach some filter criteria. Most companies take lot of time to enter stocks – with exception such as HDFC Std Life which had stellar debut.
- So are all constituents of Index Funds in India in mature phase?
- There can be always some part of business in sunrise sectors – such as Retail or Jio Platforms of Reliance Industries?
- How is this article not discouraging customer to invest in Index Funds in India – given agents have incentives to encourage indirect active funds such as Large Caps etc.
wethypeople 