Index Investing In India TNIA Talk Part 2
Summary
TLDRIn this insightful talk, the speaker from Frean Cal discusses the nuances of passive investing, contrasting broad market indices with strategic or factor indices. They caution about concentration risks in broad indices and data mining in factor indices, highlighting the importance of understanding the risks involved. The speaker also addresses misconceptions about ETFs, emphasizing the significance of price-based metrics over NAV for investors. They conclude by recommending a predominantly large-cap portfolio with a possible addition of Nifty Next50 for those seeking moderate adventure, while warning against the pitfalls of assuming higher risk leads to higher returns.
Takeaways
- 📉 Active funds often underperform: The majority of active funds in various categories fail to consistently outperform their benchmarks, highlighting the appeal of passive investing.
- 📊 Types of indices: There are broad market indices like Nifty, Sensex, and strategic or factor indices, which combine elements of active and passive investing based on certain investment factors.
- 💼 Index investing methods: Investors can choose to invest in index mutual funds or ETFs, each with their own advantages and considerations.
- 🏦 Concentration risk in broad market indices: The top 10 stocks in indices like Nifty can dominate the weightage, leading to concentration risk.
- 📉 Risks of factor indices: While factor indices can show strong performance, they are also subject to underperformance periods and data mining risks.
- 🕒 Time lag in investment trends: Investment strategies that are popular in the West may take time to become popular in India, which can lead to adopting strategies that are past their peak performance.
- 📉 Beware of tracking error: The common practice of calculating ETF returns and tracking error based on NAV rather than market price can be misleading for investors.
- 💼 ETFs vs. Index Funds: While ETFs offer trading flexibility, they may not always provide better returns than traditional index funds, even with lower expense ratios.
- 🔄 Importance of price-based metrics: For ETFs, it's crucial to consider price-based returns and tracking differences rather than NAV-based metrics.
- 🌐 Liquidity and tracking concerns: In times of market stress, midcap and small-cap funds can face liquidity issues and tracking difficulties, making them riskier than large-cap focused funds.
- 📈 Nifty Next50 as a substitute: For those seeking exposure beyond the Nifty 50, the Nifty Next50 offers a good alternative with better liquidity and less risk compared to midcap indices.
Q & A
What is the main argument presented by P from Frean Cal in the first part of his talk?
-The main argument is that most active funds, approximately 50 to 60% in every category, are unable to consistently outperform a representative benchmark, which supports the idea that passive investing makes a lot of sense.
What are the two types of indices mentioned in the script?
-The two types of indices mentioned are broad market indices and strategic indices or factor indices, also known as smart beta indices.
How does the selection and weighting of stocks in broad market indices work?
-In broad market indices, the selection of stocks and their weighting are primarily based on market capitalization. The free float market capitalization is used, which is the total shares multiplied by the market price, and adjusted by the investable weight factor (IWF) to account for shares that are freely available for trading.
What is the concentration risk associated with broad market indices?
-The concentration risk in broad market indices refers to the issue where just the top 10 stocks can govern 50 to 60% of the weightage of the index, which means that a few stocks can have a significant impact on the performance of the entire index.
What are the two methods of index investing discussed in the script?
-The two methods of index investing discussed are investing in index mutual funds and investing via Exchange Traded Funds (ETFs).
What is the difference between strategic indices and broad market indices in terms of stock selection and portfolio management?
-Strategic indices combine elements of active and passive investing. They have specific rules for stock selection, and once selected, the portfolio of stocks is passively managed. In contrast, broad market indices are selected and weighted based solely on market capitalization without any specific thematic or factor-based rules.
What factors are used in strategic indices to select stocks?
-Factors used in strategic indices include value, quality, low volatility, momentum, and alpha, among others. These factors are used to select stocks based on specific criteria, such as return on equity, debt-to-equity ratio, and other financial metrics.
What is the potential issue with factor indices that the speaker's friend warned him about?
-The potential issue with factor indices is that they are subject to data mining risks. The speaker's friend cautioned that these indices may become popular in India after they have already been exploited in the West, leading to a time lag where the effectiveness of the indices may have already decreased.
What is the difference between ETF NAV and ETF price, and why is it important for investors to understand this?
-ETF NAV (Net Asset Value) is the value of the underlying assets of the ETF, while the ETF price is the market price at which the ETF is bought and sold. It's important for investors to understand this because they transact at the market price, not the NAV, and there can be significant price-NAV differences that affect the actual returns and tracking error of the ETF.
What are the general risks in passive investing according to the script?
-The general risks in passive investing include curation risk, where the rules for stock inclusion can change, concentration risk, arbitrary definition of factor indices, and the risk of fund managers changing the total expense ratio of passive funds to attract assets and then increasing fees.
What advice does the speaker give regarding the choice between ETFs and index funds?
-The speaker advises to stay away from ETFs unless you are a trader, as they are not designed for long-term investing due to liquidity and price management issues. He suggests that for long-term investing, index funds may be more suitable, but cautions that lower total expense ratio (TEA) does not automatically mean higher returns.
What is the speaker's opinion on the choice between Nifty 50, Nifty Midcap 150, and Nifty Next 50?
-The speaker recommends sticking predominantly to Nifty 50 for most investors. For those looking for a bit of adventure, he suggests a small allocation to Nifty Next 50 due to its liquidity and tracking ease compared to the Midcap 150, which he believes has liquidity issues and is more difficult to manage in a crisis.
What is the speaker's view on the relationship between risk and return in investing?
-The speaker emphasizes that higher risk does not necessarily lead to higher returns. Instead, it leads to the potential for higher risk returns, which may or may not materialize. Therefore, a better risk management and asset allocation strategy is crucial.
Outlines
📊 Passive Investing Nuances and Index Types
The speaker, P, discusses the concept of passive investing, noting that a significant portion of active funds fail to outperform their benchmarks consistently. The talk delves into the types of indices, including broad market indices like Nifty and strategic indices that focus on factors like value, quality, and low volatility. P highlights the importance of understanding the nuances of passive investing, such as the concentration risk in broad market indices and the potential data mining risks in factor indices. The speaker also touches on the time lag in the adoption of investment ideas between the West and India, which can lead to investors missing out on optimal returns.
🚫 Risks and Considerations in Passive Investing
This paragraph outlines the various risks associated with passive investing, such as curation risks where the rules for stock inclusion can change, and the arbitrary definitions of factor indices. The speaker also warns about the potential for asset management companies to adjust the total expense ratio, which could impact returns. P emphasizes the importance of being aware of these risks, including the possibility of underperformance in factor indices, and the need to be cautious about the tracking error and returns of ETFs, which are often misleading when based on the NAV rather than the market price.
📉 ETFs: Tracking Errors and Market Price Discrepancies
The speaker addresses the common misconceptions about ETFs, particularly the misunderstanding that ETF returns and tracking errors are based on the NAV, which is irrelevant for investors who buy and sell at market prices. P explains the significance of using price-based metrics for ETFs, as market prices can differ significantly from NAVs, leading to discrepancies in returns and tracking errors. The paragraph also discusses the importance of considering the liquidity and trading volume of ETFs, as less popular ETFs may have better tracking errors but could be less suitable for investment due to lower trading volumes and potential liquidity issues.
📈 Index Fund Selection: Midcap vs. Small Cap vs. Nifty Next 50
In this paragraph, P presents a comparison of different indices, emphasizing the historical performance of the Nifty small cap, midcap, and Nifty 50 indices over a 10-year period. The speaker suggests that the Nifty small cap index has not outperformed the midcap index, and thus, investing in small cap active funds may not be as beneficial as investing in the midcap index. P also discusses the performance of the Nifty Next 50 index, suggesting it as a suitable alternative to the midcap index due to its liquidity and ease of tracking, despite the potential for higher impact costs in the midcap segment.
💡 Final Takeaways: Stick to Sensex/Nifty and Consider Nifty Next 50 for Diversification
The speaker concludes with recommendations for investors, suggesting that sticking to a single Nifty or Sensex fund is sufficient for most, with the option to add Nifty Next 50 for those seeking a bit more diversification. P argues against the necessity of midcap and small cap funds, based on their historical inability to outperform the midcap index. The speaker also cautions against the assumption that higher risk always leads to higher returns, emphasizing the importance of a well-managed risk and asset allocation strategy.
Mindmap
Keywords
💡Active funds
💡Passive investing
💡Benchmark
💡Broad market indices
💡Strategic indices
💡ETFs (Exchange-Traded Funds)
💡Index mutual funds
💡Concentration risk
💡Factor investing
💡Tracking error
💡Total Expense Ratio (TER)
💡Nifty next50
Highlights
Active funds struggle to consistently outperform representative benchmarks, suggesting passive investing is a sensible approach.
Passive investing involves two types of indices: broad market indices and strategic or factor indices, each with different characteristics.
Broad market indices like Nifty and Sensex use market capitalization for stock selection and weighting, leading to concentration risk.
Strategic indices combine active stock selection with passive portfolio management, focusing on factors like value, quality, and low volatility.
Factor indices are subject to data mining risks and may underperform during certain market conditions.
There's a time lag in the adoption of investment ideas in India compared to the West, which can impact investment outcomes.
ETF returns and tracking errors are often miscalculated based on NAV rather than market price, which can be significantly different.
The presenter recommends using price-based metrics for ETFs instead of NAV to accurately assess returns and tracking differences.
ETFs may not be suitable for long-term investors due to liquidity and price management issues, especially when compared to index funds.
The total expense ratio (TER) of passive funds can change, affecting returns, and fund managers may take on additional risk to compensate for higher TERs.
Nifty Midcap 150 has historically outperformed Small Cap indices, suggesting midcap indices as a better investment choice.
Nifty Next 50 has shown to be a close substitute for the Nifty Midcap 150, with better liquidity and ease of tracking.
Investors should be cautious of assuming that higher risk always leads to higher returns, emphasizing the need for proper risk management.
The presenter advises sticking predominantly to large-cap indices like Nifty 50 for long-term stability, with a possible addition of Nifty Next 50 for diversification.
Beating the market is challenging, and a single Nifty or Sensex fund may suffice for most investors, with Nifty Next 50 as an optional addition for those seeking more excitement.
Most midcap and small cap funds cannot outperform a midcap index, making Nifty Next 50 a relatively safer and more liquid choice.
Actively managed funds are generally not necessary for investors, as passive investing in broad market indices can be more effective.
Transcripts
hi I'm P from frean Cal so this is the
second part of the talk I gave to the
Tamil NAD investor Association in uh
March 2024 in the first part we saw that
most active funds uh about 50 to 60% of
them in every category is not able to
consistently outperform a representative
Benchmark therefore passive investing
makes a lot of sense but there are some
nuances to passive investing that we
should appreciate and that's what we're
going to talk about today so there are
two types of
indices broad market indices uh and uh
strategic indices or factor indices or
they're also called as smart vaa indices
and there are two types of index
investing uh you can invest in index
mutual funds or via
ETFs so the in the broad market indices
examples are Nifty sensex Nifty 100
Nifty 500 tt200
Etc uh the market capitalization is the
primary uh criteria for selecting the
stock as well as determining the weight
of the stock in the index the free float
market capitalization is used that is
the market capitalization is total
shares into market price the free float
market capitalization uh as govern as
defined by the NSE excuse me is the
market capitalization times something
called iwf investable weight factor
which is a measure of the amount of
shares that are freely available for
trading not held by the promoter not
held by the government etc etc uh the
problem with the broad market indices is
that about just 10 stocks the top 10
stocks will govern 50 to 60% of the
weightage if you look at the Nifty
stocks there just the top few stocks
will take up the bulk of the weight of
the uh index so there is a concentration
risk of course such risks are much
smaller than that of an actively managed
fund historically but still we should
know that it's
there so this is the index map index
family map of the uh nsse you have the
Nifty 500 the top 500 Stocks by market
cap out of that the top 100 Stocks by
market cap are the large cap the middle
150 the midcap the bottom 250 the small
cap and then there are subdivisions and
so
on now when it comes to strategic
indices this is a combination of active
investing and passive investing so there
are there are some rules which govern
the stock selection and then that
portfolio of stocks is passively uh you
know managed so there are several
factors like uh value Alpha quality low
volatility momentum etc
etc and these definitions as I have
pointed out several times before are
kind of arbitrary uh for example quality
is defined uh equality stock is defined
based on its return on Equity debt
equity ratio average change in profit
after tax um value is defined by high
Roc return on Capital employed uh low P
low PB High dividend deal etc etc of
course these are how you define a
quality stock or a value stock is
arbitrary now when these indices were
introduced I was pretty enthusiastic
about them and I've written several
articles and made some videos about it
but then I was quickly cautioned by my
friend who is uh a fund manager in uh um
in the west he told me that uh these uh
kind of indices are subject to data
mining risks and you should be careful
about before know before taking them
seriously and uh so I became cautious
and one of the very important points he
said was he said that the an idea is
introduced in the west then billions of
dollars are uh invested in that idea
then that idea turns sore the returns
start to decrease then people start
complaining about that idea only when
people start complaining about that idea
or recognize that that that idea is less
than ideal then only that idea gets
popular in India so there's a time lag
between when it some when something gets
popular in the west and when it gets
introduced in India and uh that is a
that's a problem so he told me to be
cautious about it and uh and just as he
predicted um I had shown that the Nifty
midcap 150 quality 50 index um is a
warning for Factor investing fans if you
look at the uh
midcap 150 quality 30 index that is 30
quality Stacks picked from the midcap
150 that's the black line compared with
the base index the Nifty midcap 150 the
red line uh since Inception you can see
that the quality index has done
extremely well however if you look at
the performance from April uh sorry
February 2022 or so early 2022 you can
see that the quality index has done
quite badly this is the time when the
mid cup index soed up in the last uh you
know year or so and so on but the
quality is index has not done well so
that is a risk of underperformance that
you have to be aware of in all Factor
indices including my favorite low
volatility uh index that's something
that you have to be uh careful about I
many of you may know that I like low
volatility investing and I have invested
in low volatility but uh I have to also
be aware that it will not work all the
time uh there is also a u quality 50
small cap 250 index 50 quality stocks
from the small cap 250 the red line
compared with the base index you can see
the red line has done quite well however
that that is uh that outperformance is
only recent if you look at the early uh
you know data uh it is not uh done well
so if you look at the time when there's
a there's a big bull run in the early
2000s the small cap Quality Index has
not done well so you have to be aware
that all Factor indices will go through
such periods
so General risks in passive investing
there is a curation risk uh the curator
can change the stock inclusion rules due
to mergers Dem mergers Etc they can
arbitr change the PB formula they can uh
there is a concentration risks that I
talked about then there is a U Know
arbitrary definition of the factor
indices themselves then the AMCs can
keep changing the total expense ratio of
passive funds at will they will keep the
te low to attract AUM once the AUM comes
in they will jack up the TR and that's a
risk that we have to be aware of then to
compensate for the higher and higher uh
total expense ratio the fund manager
will have to consider taking some risk
in the cash component of the fund for
example via stock lending to compensate
and get slightly higher returns but that
is a those are all risks of passive
investing of course these risks are um
small smaller compared to the
underperforming risk and the fund
manager risk in active funds however
they are risks and we should
recognize now uh coming to
ETFs one of the biggest problem I have
is that the ETF returns and tracking
error that you see everywhere is based
on the ETF nav we should understand that
the ETF nav has no relevance at all for
the ETF investor for the normal ordinary
ETF investor unlike a mutual fund in a
mutual fund there's only the nav and
that is important yes but in a
ETF uh there is an nav but you are not
going to get the units or you are not
going to sell the units back at nav you
are going to buy and sell at the market
price the price of the ETF and there
will be price na differences and this
can be a significant difference uh
people do not calculate the tracking
error and returns of the ETF using the
price which is the actual data and they
instead they use the na which is wrong
uh we have a tracking error screener
which takes care of that for
ETFs so to illustrate the point these
are the threeyear uh ETF price minus ETF
nav return so uh uh return Bas threee
return based on price minus threeyear
price uh threeyear return based on nav
price return minus nav return rolling
over three years and you can see the
significant difference um so that and
this is actually for one of the most
popular ETFs and this it can be more for
uh you know less popular ETFs which are
not trade out
often uh but and this is the same data
over 10 years and you can see that the
popularity in passive investing here
the the the return the 10e uh know price
minus uh nav return was as high as 2%
but that has now come down but it's
still significant over one or two years
and that can affect the way in which you
you know compute your returns and that's
bad so you can now see that uh when I
look at the tracking error based on nav
uh you can see and this is one of the
most popular ETF Nifty BS uh you can see
over one year two year three year 5 year
Etc the nav based tracking error is very
low but it jumps up by 10 times when I
look at the price based tracking error
so we should always look at the tracking
error and return based on the price and
not the
enable and uh this is the tracking
difference the tracking difference is
the fund return minus Benchmark return
again the the navb return minus
Benchmark return is shown here whereas
the price return minus the Benchmark
return can be significantly different
so that's why you should use always
tracking error tracking difference and
returns based on the price EDF
price so another example so a is uh most
popular Nifty ETF I think Nifty BS and B
is um some ETF I don't remember the name
uh which has got a 10 times lower uh AUM
and it's uh volume traded is about I
think 50 times lower if I'm not wrong
I'll check that up and and the AUM the
amount traded as on 13th March 2024 when
I looked at the data was 59 times
smaller so clearly etfb is a uh less
popular ETF but if you look at the
tracking error based on um uh uh you
know price just a tracking error alone
you can see that etfb has got a tracking
error which is better than etfa does
that mean uh etfb is better no not quite
so first you should use the price second
you should be careful with the tracking
error because the tracking error is a
metric that the fund manager has to use
to understand whether he or she is uh
close to the Benchmark performance but
for the investor all that matters is the
return difference so that tracking error
can be misleading uh etfb is
significantly less popular it is
significantly less traded but still it
has got a better tracking ER that
doesn't mean you should go invest in it
because if you look at
the uh the returns etfa which is the
most popular ETF has got better returns
slightly better returns obviously
there'll be not much difference and if
you look at the tracking difference etfa
has got the lower tracking difference so
that is why I keep telling people first
look at the price based so price based
metrics price based returns and price
based tracking difference that's the
most important Point don't look at
tracking error tracking error is not
something uh we can easily understand
because tracking error is defined as a
kind of like a standard deviation and
it's not something that it is intuitive
tracking difference is intuitive because
it's return difference I am paying money
how much return have I got compared to
the Benchmark that is very easy to
understand so always use tracking
difference and always use the price ETF
price to calculate returns and the
tracking
difference so the ETF wish list I had
already talked about the um EDF price uh
and the nav should be reported by ay the
AY only reports now price also should be
reported um the returns tracking error
tracking differences should be computed
with the price and not the now then the
regulator should uh police uh uh price
versus nav differences because there is
a authorized participant which the AMC
has has to you know push to reduce now
price differences in the market but the
regulator must keep an hold on this and
make sure that the AMCs are doing it
some AMCs do it very well some AMCs I
don't think they do it as
well uh then we have a comparison of um
an index
fund which is uh the red line I think I
think it's U nifty50 and uh the white
line is a popular ETF which is Nifty BS
so Nifty B having a TR of
0.04 and that's an index fund is a 21%
total expense ratio if you look at the
fiveyear rolling returns there's not
much difference between the two many
people will say oh lower TR immediately
buy blindly no it doesn't uh that's not
true an index fund charging 21% T can
easily match up to an EDF with 04 per T
however are they taking a little more
Risk by stock lending in the cash
component is a is a caveat how but that
said just don't go blindly by TR lower
TR does not mean automatically higher
returns that is not
true again over 10 years you can see
there's not much of a difference between
the
two so ETFs versus Index Fund the final
word my suggestion is please stay away
from ETFs unless you are a Trader unless
you want to uh buy and sell during
Market hours live uh there's no need for
ETFs just stay away from them because
you will keep investing in an ETF over
10 years 15 years then you will get five
CR six crores and you want to sell them
at some point you want to sell one CR
you can't immediately sell because you
have to gradually sell according to the
demand Supply forces on that day and so
on I mean that's not uh it's unnecessary
so unless you are a Trader I think you
should not invest in AES they're not
designed for that longterm in my opinion
because you don't have that kind of uh
you know liquidity and price now uh uh
you know
management then um the next question is
which uh index should I choose this is
my opinion many many people will agree
disagree with me already there are some
disagreements in the first part
especially young people they want oh
more of more of midcap more of small cap
um I would say no but then you can
dismiss me as an old guy but that's
fine so what you see here is the rolling
returns over 10 years of three indices
the Nifty small cap in green the Nifty
midcap in pink and the nifty 50 in
yellow you can see that the Nifty small
cap index has not bet the midcap at all
over 10 years and remember most active
small cap funds have not bet the pink L
most of them are below the pink L
whether the are active small cap funds
or active midcap funds they are below
the pink l so why would you invest in
a um actively manage small Cap Fund when
you have the midcap index why would you
next want an actively manage midcap fund
when you have the midcap index why would
you invest in a small cap Index Fund
when you have the midcap
index as for as of this dat of course
you have to invest in nifty50 just by
looking at this you can say some people
very nice say I want to put all my money
in midcap that is not true you need a
balance you must understand that U
midcaps has the potential to outperform
a large capap but that doesn't mean it
will happen all the time that doesn't
mean it will happen to you your
particular sequence of return may be bad
not you may not always get this huge gap
between this pink and yellow you may get
this kind of a gap between pink and
yellow what will you do so for that to
take into that into account you should
always have a good chunk of large caps I
would say dominantly large cap 100%
large cap is also absolutely fine but
young people will not listen to me they
say oh I want this I want that there's
always four more you can't get rid of
that so this trend is also seen in the
US now um where there is a small cap not
beating the midcap so you can see that
the white line is the small cap index
the um the brown line is the midcap
index and the rose line uh is
the uh the pink line is the the large
cap index the S&P 500 so you can see
that the um midcap has uh consistently
outperformed the small cap so it's
there's no need for small cap indices
definitely and definitely no need for
small cap active funds when you have the
midcap index question is whether should
you invest in the midcap index when you
have Nifty next 50 that is the question
that uh we'll have to answer which we
shall do now so now this is a comparison
of nifty small cap 250 versus Nifty
next50 or 10 years except for the recent
last one year or so the Nifty next50 has
done quite well and I will be very happy
to use a Nifty next50 instead of a small
cap Index Fund or even a small cap
actively managed small Cap Fund I have
shown that Nifty next50 does well
compared to many actively manage small
cap funds as well um don't assume that
this outperformance will last for it
will come down
so uh now comes the most important graph
I would say this is a comparison of
nifty next50 versus Nifty midcap now I
have always maintained that the Nifty
next50 is a very good substitute for the
Nifty midcap 150 index now that has
turned out to be true for a large part
of the history of both indices where you
can see that the pink line and the uh
yellow line have been almost on top of
each only in the last few years has the
midcap index really moved away from the
Nifty
next50 what does this mean is this going
to be always the case I don't know will
it come down I don't know uh does this
mean the Nifty next50 has become less
volatile because of more Market
participation is Nifty midcap a better
choice than Nifty
next50 I would say we don't yet have
enough data to factually say something
about it uh but if you ask me I would
still pick the Nifty next50 compared to
the Nifty midcap index because midcap
has got 150 stocks you have liquidity
issues in the midcap segment uh the none
of the actively M sorry none of the
sorry excuse me none of the passively
managed midcap index or small cap index
has ever seen a big crisis Nifty next50
has niy next50 passive funds have seen
crisises in 2020 20 eight and so on but
the the passively managed mid and small
cap funds have not seen a crisis when
there is a big crisis in these segments
there will be liquidity issues there can
be huge uh problems for the fund manager
in tracking those stocks 150 stocks 250
stocks and so on so I would prefer uh 50
stocks of niy x50 if I want if my hand
is itching uh and I say I want something
extra compared to nifty50 otherwise I
will my my strong advice is stick to the
sensex to the Nifty predominantly that
is enough for you there's no need for
any other index but if you feel that you
are missing out on something long-term
potential and so on as some people claim
then you can buy uh Nifty next50 there's
no need for Nifty midcap I don't know
whether this out performance will last
it'll come down I have no I'm not saying
all that I'm only saying just based on
the point of the liquidity issues in
midcap and the ease of tracking 50
stocks compared to 15 50 stocks as on
date I would still prefer and recommend
the Nifty next50 I'm sure many of you
will disagree with me but that's
fine and this is the comparison of the
nift X15 now in green versus the nifty
50 in uh in
yellow generally there is a reasonable
chance of the Nifty next50 outperforming
the nifty50 but not always this is true
for small caps midcaps whatever it is
not always always that that is why you
should always have your portfolio
predominantly in large caps only in
large caps also is fine but
predominantly in large caps take a
little little extra by Nifty next50 okay
if you want Nifty midcap go ahead and
invest in it but don't expect it to
always outperform and don't look at the
last one year two years return and uh
you know uh push in a lot of money and
be careful when you use the Nifty midcap
index fund that when there is a crisis
there will be there could be
difficulties of liquidity and the now
will fall higher than the index for
index itself so you to be careful about
these uh issues before choosing my
recommendation is sff uh stick to sorry
stick to sensex or Nifty if you want
some Adventure which I do not recommend
if you do want it then little bit of um
Nifty next50 is enough nothing more than
that uh many people keep assuming that
higher risk leads to higher
return no higher risk only leads to
higher risk returns may or may not occur
that is why you need a much better risk
management asset allocation strategy
I've talked about this several times you
need to start decreasing your Equity
allocation well before your go deadline
you should have conservative return
estimates conservative asset allocations
Etc but that's that so I think that's
all I have to say one more slide I don't
know so uh final takeaways beating the
market is not easy a single Nifty or
sensex fund is enough if you want more
excitement add a Nifty x50 most midcap
and small cap funds cannot beat a midcap
index Nifty next50 returns are close to
a midcap Index Fund Nifty next50 is
relatively safer compared to a midcap
index because uh uh it has got better
liquidities closer the large cap than
the midcap although uh you know the
impact costs are high impact cost means
that uh um if I try to uh buy and sell
large quantities of uh shares then there
will be a big difference between the bid
price and the ask uh buying price and
the selling price and that's called the
impact cost in India aside from the top
10 to 15 stocks the large cap the impact
cost significantly increase uh so that
the that's why the liquidity crisis
comes that is when you're not able to
buy or sell large amounts of uh midcap
stocks and so on that crisis can also
occur in Nifty next50 but it is
relatively better than a midcap or a
small cap
obviously actively manage funds are not
necessary that's that's about it
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