I'm late to this discussion :) Thanks Lahar for pointing out my post! I've changed on one thing since that post. Index funds may not be the best option in India - and this is due to: - bad construction of indexes (we use a free float market cap weighted index largely, like the Sensex or Nifty, which have stock and sectoral biases. The broad indexes have little acceptance, and we don't have stuff like equal weighted indexes yet) - dividends are a good source of income but don't reflect in the index values. There's something called total returns index, but no one mentions that for comparisons (it shoudl be the only thing compared) - non index stocks do well because the indexes of choice like Sensex or Nifty aren't broad enough.
I wrote a post about the data: http://capitalmind.in/2014/08/in-india-mutual-funds-have-beaten-the-nifty-no-survivor-bias-edition/ The point was - let's take the TOP funds as they were in 2005, and assume you invested in the top 5 or 6 of them. Nearly all of them have beaten the Nifty (total returns, assuming reinvestment of dividends). THere's no survivor bias - I took the top 5 or 6 and all have survived, and I took only the top ones because they are the ones you would have bought. The fact remains that they aren't the top funds today, and some nowhere near the top, but they have still beaten the indexes, after accounting for fees. This I cannot ignore, so I should say I'm probably wrong about index funds. On the point about "should investing be left to the professionals" I'm with Mahesh that this is more like hubris. I think of investing like the great Chef Gusteau said about cooking in Ratatouille, that anyone can cook. This doesn't mean cooking is so easy that anyone can do it, but that it's a thing that anyone can excel at if they put their mind to it (and probably aren't even professionals). You can be a phenomenal investor and yet, have a day job. DIRECT mode - I've spent way too much time rescuing people from shitty advice from silly intermediaries who have ruined very solid portfolios - timing stocks I understand, and I do it, and I tell people that if they don't have the time, they should just use a fund to invest. But timing and rejigging investments in mutual funds is by and large a waste of time, and for every such rejig I have NEVER met a manager who has evaluated how much worse (or better) the investor would have been, had those rejigs not been done at all. The DIRECT mode gives you an edge of about 1% a year on equities. This, plus any fees you pay an advisor, add up to a layer of outperformance that the advisor has to provide just to break even with the direct mode. Good advisors too don't know what will happen, and tend to get into the herd mentality, the crowd, the loss aversion and all those little behavioural biases that screw up our investments. This happens with professional fund managers too...and the only real edge that professionals used to have was insider trading knowledge, which has become a little harder to come by. Advisors have almost no edge in fund selection; at best, they can use some data, which is just driving with your eyes in the rear view mirror. (Advisors though can help with things like setting up HUFs, creating inheritance structures, doing goal oriented investments etc. ) Deepak Shenoy http://www.capitalmind.in Twitter: @deepakshenoy On 2 October 2014 10:04, Deepak Misra <[email protected]> wrote: > Jumping into this a bit late, but will try to avoid repititions > > > 1) Open a PPF account in every member in the houses name. This is an > absolute must and try to put as much as possible there. The high tax > free return with compounding at zero risk is something that is > difficult to match > > 2) The first house/real estate is not an investment. The subsequent > ones are. While the ROI in terms of rent maybe low, the caital > appreciation is what counts. As some earlier pointed out, the tax > breaks on loans makes effective interest low. > > 3) An approximate cash flow statement needs to be prepared to plan for > big ticket expenses. The savings/retirement strategy and allocation > depends a lot on this. > > 4) Assume that good fund managers know more than you and have much > better data. If you treat mutual funds as investing then this holds > true over investing directly in stocks. Many peeople do make money on > stocks but lots more do loose. In case you have the time, expertize > and drive, then it make sense to research stocks and buy directly. > > 5) Allocate an ideal percent of cash to debt, small cap, balanced and > large cap depending on risk profile and adjust investment accordingly. > Even if the amount per month is miniscule, it all adds up > > 6) Regular SIP is a must. That is the key !!!! > > 7) For equity keep long term in view. If Mukesh Ambani sneezes, the > stock market crashes, but that does not mean that all business are > going to sink. ONce he starts smiling the market may boom. Over a 10+ > year horizon this hardly matters. Equity in INdia is too weighed by > sentiment over fundamentals and along term perpsective hedges you > against that. > > > > ON a slightly unrelated note, I had asked about this site called > perfios a couple of years back. I upgraded from free to premium and am > very happy with the site. YOu might want to check our the free version > and see if it helps. > > Deepak > > > > > On Tue, Sep 30, 2014 at 9:11 AM, skn <[email protected]> wrote: > > Hi all, > > > > All this talk about retirement and how closely coupled it is with > > financial freedom got me thinking (more) about financial planning. > > > > I was wondering how my fellow Silkers (is that how we are collectively > > called?) have been (or have already) preparing for financial > > independence in the later years? What are the good financial principles > > to live by? Some of the things I have been trying to get my head around > > are about property as an investment, (long term) investing in company > > shares vs. index funds vs. mutual funds, % income to save vs. how much > > to invest vs. how much that can be spent (given I have very young kids) > > etc. etc. > > > > Any insights, life lessons? > > > > -skn- > > > >
