Why Advisors Recommend Index Funds or ETFs Over Large Caps

Santosh Joseph: I’m sorry to disappoint you, we’re going to move towards some kind of consensus here. I think the way SEBI is structured now the application of new fund offerings and even the launch of new fund offerings there is little wiggle room as to what an AMC can do but fill in the gaps of the package of services you already have . Now I still see that many don’t have multiple caps and I’m sure in the next few days when you know that embargo lifts and SEBI provisions are a little easier to find, a lot of multiple caps will come because everyone converted their old multi-cap to a flexi cap and I think we’ve discussed that in the past and so from an investor perspective I think there’s something new under the sun is a big question mark because if it’s new and if it adds value, then we have reason to welcome a new fund offering.

Now, for a mutual fund company, that’s fine because for them it’s new because they don’t have it in their basket, from an investor, there’s a peer group available. Now, how do you mix these two? The challenge is, like what Tarun said, usually these NFOs come into the markets are very dynamic and have a lot of momentum in the market. Now, we must also understand that even investors like to invest only in a momentary or momentum market. You go to an investor to tell him that when the markets are low and beaten they will not give you a rupee even if it is a large cap fund or a small cap fund. You can now give a 100 slide presentation on value, the benefits of long-term investing, and the benefits of investing in a bear market. All this will not fall and will not be appreciated. But from a fund launch perspective, you still want the right combination of the product itself to be something the CMA wants and also the market dynamics to be in the right space. So I think AMCs do better what they want to do, which is to go out with whatever fund they want.

Now when you look at this today the reason why some of us may be looking forward to some of the NFOs although it’s not a blanket sanction for all customers as there are already some very good peer options with attribution, with enough performance background. Is this a classic example? You know you have a new entrant in mutual funds right now, white oak, that’s launching a capital flexible fund, I’m sure when their approvals are there they’ll be with the fraternity and the investors to come and talk of their fund. Also, I think I read that Edelweiss was coming for their focus fund. When you look at those two things what does it tell you that a particular fund house feels they can do well in a particular space that they don’t have an offer for yet 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 space now, if that bodes well with the investor at that particular time, if there is money coming in, can they consider donating money to a new fund offering. Because the fund is going to start on a new balance sheet, you’re really relying on the pedigree of the mutual fund company, the pedigree of the fund manager, the pedigree of the reason for those previous fund offerings, whether they are there to raise money or because they can add value to the topic or purpose of the program they are pursuing. So there’s no easy answer to that… If the investor is doing well, and the story that the fund houses are presenting in particular matches the profile of the investor, I think that’s the essential, if it fits the profile of the investor, even if 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 much more spread out investment time horizon than money coming in at 80-90% investment level upfront. So there are pros and you know, cons. But I think we could take an individualistic view of these new fund offerings that are, you know, going to start now.

Dolores W. Simon