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Indian market is efficient enough for passive funds

Indian market is efficient enough for passive funds
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First Published: Wed, Mar 31 2010. 09 00 PM IST

Photo: Shriya Patil Shinde / Mint
Photo: Shriya Patil Shinde / Mint
Updated: Wed, Mar 31 2010. 09 00 PM IST
Saumya: With the markets being buoyant, what should be the investment strategy?
Photo: Shriya Patil Shinde / Mint
Shah: One’s investment philosophy should be based on asset allocation and on risk parameters. Another way of looking at investing in market is to follow the process of SIP’s (systematic investment plans) and VIP’s (value averaging).
Sara: How would you differentiate Nifty BeES from other index funds?
Shah: Nifty BeES are ETF’s (exchange-traded funds), therefore you can buy them at real time NAV (net asset value) on the exchange. Their tracking error is lower compared with other index funds and the expense ratio on ETF’s is lower compared with other index funds.
Djokovic: How do you market VIP to investors considering not many distributors, I hear, sell benchmark schemes?
Shah: We belive VIP is a very new concept offered only by Benchmark. It is much smarter way of investing regularly compared with SIP’s and the number of distributors selling it are increasing.
Also See Nifty BEeS (Graphics)
Sangeeta: Do you mind delving a bit on the asset allocation term for a layman?
Shah: Asset allocation is a process of distributing investments in a portfolio across various asset classes in order to achieve the highest investment return for the defined risk.
Starting point of asset allocation is defining risk budget or risk tolerance of the portfolio.
Djokovic: With IDBI mutual fund saying that they will launch passive funds, do you think fund houses are finally realizing the value of passive management?
Shah: Absolutely, our research shows an important point: Indian market is efficient enough and hence our performances of individual active managers are random, transient and unpredictable.
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First Published: Wed, Mar 31 2010. 09 00 PM IST