- Wealth PMS
In the west, it’s common to take ETFs and say that they have beaten managed funds by a wide margin because markets are efficient and fund managers eat too much and yada,yada,yada.
This is apparently not true in India, where fund managers seem to be able to easily beat the Nifty ETF.
So in India, it’s been better to buy mutual funds than to buy Index ETFs. And even more in the last one year.
Let’s be honest first and say that:
a) Everything in India in terms of equity is compared to the Sensex or the Nifty. So don’t tell me to compare to the S&P 500 or something. The Nifty is good enough.
b) No survivor bias: It’s not fair to compare today’s top funds with the Nifty. Why don’t we just take funds that were the best around 10 years ago? I found a link by Rediff, which has the top funds in 2005. Let’s take the top few funds of that time, and see how they have done with respect to the Nifty.
The Nifty Raw index is not a good thing to compare with mutual funds, because it does not include the impact of dividends. Mutual funds invest in the underlying stocks so their NAV contains dividends, reinvested. Comparing with the NAV of the Nifty ETF wouldn’t make sense too, as these ETFs pay out dividends (so NAV falls, and we don’t want to compare a dividend paying NAV with a mutual fund’s growing NAV). We therefore use the Nifty Total Returns index which is released by the NSE and includes the impact of reinvesting dividends.
For mutual funds we use the “Growth” option NAV which is the same as reinvesting dividends.
Mutual fund data as of 14 Aug 2014. The multi year results are annualized growth rates. Data on mutual funds from valueresearchonline.com.
Here’s what we get:
We haven’t compared the rest of the lot, but taking the top 6 and getting such an incredible result is proof enough, we think.
There are good reasons for it:
Disclaimer: This is not an advertisement to go buy funds. I’m just debunking a myth. I was as surprised as many of you, honestly.
Listen carefully. People will quote research papers to say that ETFs are better than funds. This might be true for a different market, but it’s definitely not been true for India, and definitely not in the last one year.
In India, Mutual Funds have (generally) done better than the Index.
Please feel free to prove me wrong. But don’t use things like risk adjusted returns (no one cares, it’s a choice between Nifty or a fund). Or “on average” (because on average expects to you to invest in funds that have always been crappy, which is like what are you smoking).
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