Markets
BSE See NSE See 39,599.19
164.25 (0.42%)
collapse Related Readings collapse

ETFs Vs Actively Managed MFs

| 11/29/2012 9:00 PM Thursday

Q) I am 35 years old and have been investing in debt for the past few years. However, I now wish to earn higher returns by investing in equities. As my job involves a lot of travel, I do not have the time to pick the best stocks. I would like to invest in ETFs as they have lower costs than mutual funds and invest in safe stocks in the Nifty or the Sensex. Please advise me on my investment plans.

- Subhan Talukdar

A) You appear to be a fairly conservative investor as you wish to invest in stocks in the Nifty or the Sensex. ETFs are one way to participate in the equity markets, but you could also look at other alternatives such as large-cap mutual funds.

ETFs invest in securities in an index such as the Nifty. As an ETF is passively managed, it simply mirrors the index and the fund manager only needs to buy or sell securities (when the index constituents change). In contrast, the fund manager of an actively managed mutual fund seeks to outperform the market by stock-picking and/or sector-picking based on comprehensive evaluations of companies and industries. The manager may frequently rebalance the portfolio to benefit from opportunities in the market. In fact, an actively managed large-cap fund may not mirror the index and may frequently buy & sell securities in its universe of large-cap stocks. Therefore, an actively managed fund may have higher expenses than an ETF as the fund house charges for professional management services.

Large-cap funds invest in stocks of well-established blue-chip companies in the Nifty and Sensex, and are diversified across sectors. These funds can deliver higher returns than the benchmark indices, especially in the long run. In contrast, ETFs effectively cap upside returns as they only try to match (and not exceed) the benchmark returns.

The following graphs compare the returns from actively managed large-cap funds with those from ETFs, the Sensex and the Nifty. On a long-run basis, the actively managed large-cap funds significantly outperformed the Sensex and Nifty as well as the ETFs. On a three-year basis, post-expenses, Franklin India Bluechip and ICICI Pru Focused Bluechip have generated more than twice the returns generated by the Sensex or Nifty. On a five-year basis, HDFC Top 200 was one of the best-performing large-cap funds and generated post-expense returns of almost eight per cent, while those of the Sensex and Nifty were less than one per cent.


Note: GS Nifty Bees = Goldman Sachs Nifty Exchange Traded Scheme. Kotak Sensex ETF was launched in June 2008 and ICICI Pru Focused Bluechip was launched in May 2008

 

Find More Articles on: DSIJ Magazine, Financial Guidance, Personal Finance, Mutual Funds, Product, Mid Cap

«« First « Previous |1 2 | Last ››
news letter

More for the early bird.

Get the post-market reports and breakfast news right in your inbox. See latest »

DSIJ Mindshare

Ducon Infra partners with Sterling & Wilson to bid for large GFD projects

Apurva Joshi / Article rating: 5.0

Ducon Infratechnologies Limited has entered into a strategic tie-up with Sterling & Wilson Private Limited, a flagship group company of Shapoorji Pallonji Group, to jointly bid large-sized FGD tenders. Ducon is an emerging technology company providing solutions in the industrial, infrastructure and digital space to multiple business segments across varied industries.

12345678910Last

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Logistics sector will play a vital role in making the concept of ‘Make in India’ a success. This will be further aided by some of the recent steps taken by Government of India such as granting of infra sector status to logistics sector.

Best and worst Performing Sector Funds of Year 2017

Best and worst Performing Sector Funds of Year 2017

As the year-end has approached most of you are eager to know the mutual fund movers and shakers of the year 2017. Read on to find the performance of various sector dedicated funds.

Markets may start positive, but volatility likely due to F&O expiry

Markets may start positive, but volatility likely due to F&O expiry

The start of the F&O expiry day is likely to be in the green, but volatility may creep in with the progress of the session. The SGX Nifty suggests that the Nifty could open at 10,525 with gains of 32 points at the opening bell. 

Pidilite announces buyback of Rs 500 crore

Pidilite announces buyback of Rs 500 crore

The buyback offer comprises purchase of up to 50,00,000 equity shares. The buyback offer size comprises 0.975 per cent of the total paid-up equity capital of the company.

Bank Nifty drags markets to close in the red

Bank Nifty drags markets to close in the red

The late session fall in Bank Nifty changed the direction of the market, leading to a marginal fall in the benchmark indices. Bank Nifty yet again resisted at its multiple point downward sloping trendline level at 25733.

Six major underperforming MF schemes having higher expense ratios

Six major underperforming MF schemes having higher expense ratios

Mutual funds with a large size of assets under management (AUMs) are supposed to have lower expense ratios. However, there are schemes with large AUMs but having higher expense ratios and generating lower returns. 

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma index has come in as the healer in an otherwise sluggish market. Index has given a consolidation breakout at the 9420 level today and if the it sustains 9420, followed by 9628 on the upside, it has a long way to go.

Ten stocks close to their 52-week low

Ten stocks close to their 52-week low

Following stocks are close to their 52-week low as at 12.35 p.m. on December 27.

Ten stocks close to their 52-week high

Ten stocks close to their 52-week high

The markets on December 27 opened gap down. BSE Sensex is trading at 34,068.15, up by 57.54 points and the Nifty is trading at 10,539.45, up by 7.95 points.

Five stocks with selling interest

Five stocks with selling interest

Overall volumes in futures & options currently stand at 62.75 lakh contracts with a turnover of Rs. 5,19,204.72 crore.