@Sharat I agree with post your points especially the point where can active fund beat an index fund over 2 3 decades consistently no one knows.
But I disagree using Nifty Next 50 as any benchmark. It’s an index which is discovered cutting broad market index and mining past data suddenly having higher returns people think they have found gold. Last 5 years it has not even beaten N50 TRI if you run sip or one time investment.
I think we should still stick to N50/N100/N500 any other index or ratio (50:50 for example N50:NN50) you are trying outsmart the market thus going away from the simplicity and index principle.
It’s like saying S&P lower 250 can have higher returns than top 250. So rather than using market weighted S&P 500 using 2 halves of 250 in ratio 50:50 to get higher returns :) S&P500 or VTSAX are equivalent index in US.
Simple N50 or N100 (whether as a single fund or synthetically created 85:15 ratio N50:NN50) should do the job in India (N500 still has liquidity issues). Anything else you are again doing the same thing which you wanted to avoid when you moved to index investing.
Sharat, You wrote: "Less than 40% fund beat one of indices. This is also a reason why one must choose to avoid investing into all NFO unless a lot of information about future portfolio formation is disclosed." If anyway less than 40% funds beat indices, and portfolio formation anyway will change and will be "passively managed" in the real sense, in most cases, why should NFOs be avoided? I ask this in all sincerity, as someone trying to understand all of this as a new investor. I understand it is not clear for NFOs how and where the money will be invested, but if current MFs perform dismally vis-a-vis indices, then anyway a simple investor has no other option other than take his chances.
If possible, please elaborate and suggest a way out for those examining NFOs rather than current funds where they already put a disclaimer "Past performance is no guarantee of future performance, or whatever"
@Sharat I agree with post your points especially the point where can active fund beat an index fund over 2 3 decades consistently no one knows.
But I disagree using Nifty Next 50 as any benchmark. It’s an index which is discovered cutting broad market index and mining past data suddenly having higher returns people think they have found gold. Last 5 years it has not even beaten N50 TRI if you run sip or one time investment.
I think we should still stick to N50/N100/N500 any other index or ratio (50:50 for example N50:NN50) you are trying outsmart the market thus going away from the simplicity and index principle.
It’s like saying S&P lower 250 can have higher returns than top 250. So rather than using market weighted S&P 500 using 2 halves of 250 in ratio 50:50 to get higher returns :) S&P500 or VTSAX are equivalent index in US.
Simple N50 or N100 (whether as a single fund or synthetically created 85:15 ratio N50:NN50) should do the job in India (N500 still has liquidity issues). Anything else you are again doing the same thing which you wanted to avoid when you moved to index investing.
Sharat, You wrote: "Less than 40% fund beat one of indices. This is also a reason why one must choose to avoid investing into all NFO unless a lot of information about future portfolio formation is disclosed." If anyway less than 40% funds beat indices, and portfolio formation anyway will change and will be "passively managed" in the real sense, in most cases, why should NFOs be avoided? I ask this in all sincerity, as someone trying to understand all of this as a new investor. I understand it is not clear for NFOs how and where the money will be invested, but if current MFs perform dismally vis-a-vis indices, then anyway a simple investor has no other option other than take his chances.
If possible, please elaborate and suggest a way out for those examining NFOs rather than current funds where they already put a disclaimer "Past performance is no guarantee of future performance, or whatever"