Sanjiv Shah, executive director, Benchmark Asset Management Co Pvt Ltd, chats online about passively managed funds and why they are better. Log on next Wednesday to chat with another fund manager.
Saumya: With the markets being buoyant, what should be the investment strategy?
Shah: One’s investment philosophy should be based on asset allocation and on risk parameters. Another way of looking at investing in market is to follow the process of SIP’s (systematic investment plans) and VIP’s (value averaging).
Sara: How would you differentiate Nifty BeES from other index funds?
Shah: Nifty BeES are ETF’s (exchange-traded funds), therefore you can buy them at real time NAV (net asset value) on the exchange. Their tracking error is lower compared with other index funds and the expense ratio on ETF’s is lower compared with other index funds.
Djokovic: How do you market VIP to investors considering not many distributors, I hear, sell benchmark schemes?
Shah: We belive VIP is a very new concept offered only by Benchmark. It is much smarter way of investing regularly compared with SIP’s and the number of distributors selling it are increasing.
Sangeeta: Do you mind delving a bit on the asset allocation term for a layman?
Shah: Asset allocation is a process of distributing investments in a portfolio across various asset classes in order to achieve the highest investment return for the defined risk.
Starting point of asset allocation is defining risk budget or risk tolerance of the portfolio.
Djokovic: With IDBI mutual fund saying that they will launch passive funds, do you think fund houses are finally realizing the value of passive management?
Shah: Absolutely, our research shows an important point: Indian market is efficient enough and hence our performances of individual active managers are random, transient and unpredictable.
Source: http://www.livemint.com/2010/03/31210101/Indian-market-is-efficient-eno.html
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