A free trip to Goa

Unlike new age media sites which use click bait article headings such as the one above to enhance their page views (and hence garner more advertising revenue), this is no click bait article though it on the surface would seem as such.

Instead, if you are a Mutual Fund investor (Large Cap), you are theoretically gifting away a fully paid vacation to Goa for every Million Rupees you have invested. And if you are a big investor, you are gifting away a trip to Maldives every year and if you by any chance or a Very High HNI, you are just giving away a paid vacation to Monte Carlo.

Now, as a reader of many financial sites, you very well know that there is no free lunch and wondering what the catch here is. The thing is, there is no Catch. What I am calculating is simply the difference between the charges of most mutual fund and Nifty Bees.

I see the smirk on your face as you think, but then – I am missing the fact that MF’s out perform ETF’s and whatever savings I achieve will not compensate for that loss.

Indian Mutual Funds have indeed been (on a long term) out-performing Index by a margin (Alpha). But this out-performance has been on a steady decline over the years. The key reason for Alpha was that in earlier years, with a smaller capital to manage, stocks had a good time buying quality stocks that weren’t identified by others and then held on to it as both earnings and its Price Earnings got re-rated.

But with more and more money chasing the limited number of stocks, its tougher to beat the herd if you don’t innovate in how and where you invest. But as the recent episode with a large mutual fund manager showed, buying what is cheap and not liked by others may sound interesting on paper, but if it doesn’t work out as panned, investors are in for a long period of under-performance.

I don’t know how the future will unfold, I don’t know which funds will do great and which funds won’t but what I do know is that as we go forward, bigger the fund, tougher it will find to out perform and here no matter how big a ETF grows to be, it will continue to give me more or less what the Index has delivered.

If I can get a free trip every year just from the savings, why bother about the nitty gritties of constantly tracking the fund and the fund manager and switching from one fund to another in the hope that he will deliver what the former couldn’t.