Manish Bandi, Vice President, Fund Manager at India Infoline AMC makes a case for passive investing.
Retail investors
have not taken to ETFs in a big way. Why do think this is so?
It’s due to a combination of many factors - lack of education and low
conviction amongst investors in a passive strategy. This in spite of various
studies that have shown that on longer term basis, it is increasingly difficult
to outperform benchmark indices and low expenses ratio can make a remarkable
difference on overall portfolio performance. The other reason is liquidity. Not many ETFs
in India are liquid and neither do they have large volumes. However I suggest
that investor should look at the price or range of Intraday NAV for buy and
sale and should place order rather than looking at exiting volume as generally
mutual funds have market making arrangement which ensures liquidity.
Given the fact that most experts remain bullish on the long term prospects of Indian equities and outperformance is not such a big issue here, what is the role of passive funds in India?
Outperformance may not be a big issue in near term in India. However, with the markets maturing and information arbitrage narrowing, consistency of performance on longer term basis could be an issue, hence low cost passive strategy makes a strong case for allocation. I feel that all long term portfolios with a horizon of 3-5 years or more should have at least 20-30% allocation to passive strategies.
Are you planning to launch gold ETFs and gold
fund of funds which have been attracting a lot of investor attention?
Yes, we might consider launching gold ETF and FOF in future.
Are you looking to launch actively managed
funds as well?
We may consider launching actively managed funds in future.
IIFL Nifty ETF
charges the lowest expense ratio in the industry. With the recent changes in
TER, are you revising the expense structure of this scheme?
No, we have not revised our expenses structure for IIFL Nifty ETF
and it remained the lowest cost equity ETF with TER of 0.25% p.a.
When can one see the emergence of fixed income
ETFs? What are the challenges and do you see an interest from investors for
fixed income ETFs?
I find it difficult in near term and feel that the biggest challenge is practical difficulties in replicating fixed income Indices which are derived index and depends on other constituents Indices.
