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Why Advisors Recommend Index Funds Or ETFs Over Large Caps

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Santosh Joseph: I am sorry to disappoint you, we are going to go towards some sort of consensus here. I think the way the SEBI is structured now the application of new fund offers and even the launch of new fund offers, there is little leeway in terms of what an AMC can do but fill in the gaps of the bouquet of services that you already have. Now I still see that many don’t have multi cap and I am certain that in the in the next few days when you know embargo lifts and SEBI provisions are a little bit easier to come by, a lot of multi caps will come because everybody converted their erstwhile multi cap into a flexi cap and I think we have discussed this in the past and so therefore, from an investor perspective, I think is there something new under the sun is a big question mark because if it is new and if it adds value, then there is a reason for us to get excited about a new fund offer.

Now for a mutual fund company is good because for them it is new because they don’t have it in their basket, from an investor there is a peer group available. Now how do we mix these two? The challenge is, like what Tarun said, that usually these NFOs come in the markets are very buoyant and a lot of momentum in the market. Now we also have to understand that even investors like to invest only in a point or a momentum driven market. You go to an investor tell him when the markets are down and beaten, they are not going to give you one rupee even if it’s a large-cap fund or a small-cap fund. Now you can make 100-slide presentation about value, about the benefits of long-term investing and benefits of investing in a down market. Those all won’t go down and won’t be appreciated. But from a perspective of launching a fund, you always want the right mix of the product in itself being something that the AMC wants and also the market momentum being in the right space. So, I think the AMCs are doing best what they want to do that is come out with a fund that they want.

Now, when you look at this, today, the reason why some of us can look forward to some of the NFOs though it is not a blanket sanction for all the customers because there are very good peer options already with attribution, with enough of background of performance. Is that a classic example? You know you have a new mutual fund entrant right now White Oak launching a flexi cap fund, I am sure when their approvals are there, they will be out with the fraternity and the investors to come out and talk about their fund. Likewise, I think I read about Edelweiss coming for their focus fund. When you look at these two things, what is it tell you that a particular fund house feels that they can do well in a particular space which they do not already have an offering or the new AMC is coming or the new opportunity and of course, there will be a new story to believe that why they will do better in that category or that space now, if it augurs well with the investor at that particular point of time, if there’s money going in, can they consider to give money to a new fund offer. Considering the fund is going to be beginning on a new track record, then you actually rely on the pedigree of the mutual fund company, pedigree of the fund manage, pedigree of the reason of this previous fund offers whether they are there to collect money or because they can add value to the subject or the scheme objective that they are going after. So, there is no easy answer for this… If the investor is fine, and the story that fund houses presenting matches with the investor profile particularly, I think that’s the bottom line, if it matches with the investor profile though it is a new fund, because sometimes you have this luxury that you forget to take those 30-90-100 days to even deploy the funds and in markets like these you want a lot more spread-out investment time horizon than the money going in at 80-90% invested level straightaway. So, there are benefits and you know, disadvantages of it. But I think one could take an individualistic view on these new fund offers that are going to you know, begin right now.



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