How to start index investing in India

Hello everyone this is part 2 of Finn Callan for free and in this video I will talk about how to

start

index

investing

with two mutual funds or two

index

funds 50% nifty 50 and 50% nifty next 50 index so I have written several posts about how active mutual funds find it very difficult to outperform the new 50 one hundred fifty two hundred fifteen Only about 54 percent of the members in a particular category can outperform these indices, so essentially your chances of your mutual fund outperforming these indices come down to throwing a coin toss, so it is best not to spend money on active funds and simply choose index funds.

So you don't have to worry about the star rating, you don't have to worry about the fund managers, etc., but the problem is that when it comes to 1552 there are no index funds available, there are ETFs available. but the problem with UDFs is that there is a big difference in price and navigation and it is not corrected soon, so you will have a hard time selling it when you want the money, so I would suggest not using any Indian ETF. There are some exceptions, but it is best to choose index mutual funds, nicotine x50 indices are extremely volatile indices, so it is very difficult for most investors to digest, so if 1500 have the same weight for index funds, one from the main mutual fund and another from the syndrome, but they have very low AUM and many people are not comfortable

investing

in such index funds, so Lucian should choose 50 percent of 50 50 and 50 percent of nifty the next turn, so now in this graph I have normalized the nifty 50 nifty next fifty nifty 150 with the same weight and fifty percent of nifty. 50 and the next 50 moments the red is a nifty NEX of T which is on the top the blue is the nifty 50 and you can see the nifty hundred of equal weight which is the violet and the nifty mix which is 50% nifty 50 and 15 Now let's look at the returns, so the first is a comparison between the the new 50 100 and fifty percent have the same weight, so the new 1500 has one hundred of the top hundred stocks in terms of market capitalization, but In fifty percent the stock with a larger market capitalization will have greater weight, but fifty percent of equal weight each stock will have the same weight. same age weighting, so if you look at the ten-year returns, there are about six hundred and forty-one ten-year data points in each of those red dots than the black lines here in the first six forty-one points here six forty one points here and you can see This peso equal nifty hundred typically tends to outperform the nifty 100 in the long run and in terms of risk the peso equal 1500 is a little bit riskier so in the chart below It has rolling risk, so the standard deviation is plotted over ten years. periods again, there are about 640 data points on each curve, so here in terms of risk, the red line here is higher than the blue line, this means that the red line for fifty equal weights has a little more risk than fifty therefore equal weight of nifty hundred tends to offer higher reward but with slightly higher risk which is perfectly fine now we compare 50% nifty 50 and 50% nifty next 50 with the nifty hundred and this is again for more than ten years in the chart above. you can see the continued returns that the 50/50 mix outperforms the 50 hundred and again understandably the mix also has a bit more risk than the 50 hundred.

Now we compare this mixture with 50 hundred of equal weight. Please note that in terms of performance. There is not much difference between the blend and the nifty hundred of equal weight and in terms of risk, well, you can't say much because in this region the blend is a little bit riskier than if 300 of equal weight is a little riskier. and so on, so there really isn't much difference between these two indices and I think one can safely use 50 50 50 percent and the next 15 X 50 50 percent as an indicator of 50 hundred equal weights and so on, instead of use an index fund, 50 hundred With the same weight, you can choose one nifty 50 and 150 next 50 funds, that is, you can choose them from different fund houses if you are comfortable with that way and that way you will diversify the risk and you can also changing the exposure to new 50 50 practically also that is quite possible so now we compare a SI p that has been running on the nifty 50 nifty next 50 50 150 100 with the same weight and also the nifty mix of April 3, 2006, so it is a current SI pians running, so it is 1 Monthly installments for 4 to 6 months are over, so when it comes to the ingenious combination we have, we compare, we calculate the returns in three ways: One we use the ingenious combination index that we just saw in the performance comparison, which gives it 12 points to 9%. and then we take 50 percent return of nifty 50 and 50 percent return of nifty next 50 and that is a nifty weighted combination and then we combine all the transactions of nifty 50 and 15 X 50 and calculate X IRR which is the internal rate of return again, which is about twelve point three five, so regardless of which way you calculate for the nifty combination, the return is more or less similar and I think that's pretty acceptable.

If you notice, these are the returns of nifty 50 at 15 50-50 split between 50 50 and 50 the next 50 would be a simple and elegant way to

start

index investing. In India, if you want to start doing this, avoid all ETFs; you will get price differences vs. current ones and please don't assume that just because an ETF has a lower expense ratio that it is better than an index fund, it is completely wrong because people make the mistake of calculating returns and the error tracking using the ETF navigation and not the ETF price. If you actually calculate the returns using the ETF price, you will notice that the index funds tend to outperform the ETF despite the ETF.

Have a lower expense ratio, so don't assume that a lower expense ratio means a higher return in case of ETFs, but in case of index funds it is true, so avoid all ETFs first, then go to value research go to large cap section and then sort mutual funds by increasing expense ratio and choose low cost index funds than the one that tracks a nifty 50 and the other one that tracks a nifty next 50 e they invest equally in them they rebalance the portfolio once a year so that the weightings are not altered and So that is the easiest way to start index investing in India, but if you don't want to do this and are worried about getting rid of the funds active, okay, you can choose aggressive hybrid funds, that way, in my opinion, they will be the highest.

The expense ratio is justified because there are two asset classes and the fund manager has to, at a minimum, rebalance between the two each month or, if you want a little more downside protection and less volatility, you can choose a front of dynamic asset allocation as one of those balanced edge funds that I reviewed recently I see balanced edge that you can also use, this is how you can start index investing in India. I'll see you again in another video, bye.