Indians don’t fancy financial products much. A mutual fund, ETF, or ULIP is supposedly meant for investors who don’t have any idea about equities. If one can’t choose the right stocks, he is perceived as a candidate for a mutual fund scheme. Investors genuinely believe that these products don’t have the potential to deliver big returns. Whereas the underlying assets in these products, stocks, can.
So, people think that personal portfolios of stocks can deliver more returns than funds. Everybody forgets that they too construct a portfolio of stocks which may not perform as well as their best stock picks. Aggregate performance of an individual investor may not actually be far ahead of the best performing fund scheme. Every portfolio will inevitably have stocks that don’t perform or even fail. This can retard overall returns.
Fees could be one reason why returns moderate between the underlying and the derived. But then, we have ETFs as low fee options. Why do we shun them as being investment unworthy? It is in the way portfolios of ETF schemes are constructed. A well constructed ETF can deliver competing returns. India’s ETF industry badly needs a well constructed ETF. That moment is before us. We have a very interestingly constructed ETF before us.
This is a John Bogle moment for the Indian public investor. Be at the Vanguard of a new revolution.
“When everyone believes something is risky, their unwillingness to buy usually reduces the price to the point where it’s not risky.” – Howard Marks