Disclaimer
I don’t proclaim to be a investment guru and this write-up is based on my little knowledge that I have garnered based on my experience and readings. So errors and ommisions are expected.
American index fund market is more matured and Vanguard was pioneer to start the concept. The basic idea is to replicate the underlying index blindly without any human intervention. Hence companies that offer such services don’t have to pay finance wizards a huge sum of money and hence the expense ratios tends to much smaller upto 10% of actively managed funds. John Bogle, founder of Vanguard died this year but his simple concept changed life’s of many in America.
Now I have been looking for such a broad based Index fund in India for a while but unfortunately there wasn’t one for a long time. There are funds as well ETFs that track Nifty or Sensex but nothing that covers the 90-95% of the market. I believe stocks that are under Nifty or Sensex already have valuation in line with them getting listed on elite top 50 or top 30.Recently while searching I came across a fund by ICICI whose ticker is ICICI500 available on both NSE and BSE that tracks BSE S&P 500 which is much broader than Nifty or Sensex. This fund has been there from last year May but the AUM is not that great and volumes. Index funds and ETFs are normally not that popular in India and conventional wisdom is that since Indian markets are still not mature as western markets people with data availability and finance wizardry can pick wonderful stock that can beat index by handsome margins.
I have started investing ICICI500 (this month) and SBI Nifty Funds (about 6 months) because I really doubt my capability of picking single stocks. Picking of stocks by retail investors like me who have a very limited money to put in money one shot, hence even if you find a multibagger the upside is going to very limited. My idea is to invest small but continuously and not time the market but spend time in the market. Index fund by the virtue of lower costs and broader representation of the economy will help in overall compounding. And here the long term could mean 10-15-20 years depending on the need of money.
Here are the charts for traded shares and turnover in thousand rupees on both NSE and BSE.
Asset Under Management (AUM) until March 19 is 3.91 crores which is quite low as can be seen from the volumes below. The expense ratio is about 0.3%. As far the comparison the volumes seems to higher on NSE than BSE even when the ETF is based on BSE S&P 500.
One needs to have Demat account to purchase ICICI500 and can be purchased through the demat account. Direct purchase from the AMC needs to quite a big numbera a quantity of 220,000 units
Since I have just started I will keep you updated 5 years from now i.e. 16th March 2024 with the status of these two Index funds. Hopefully I can manage to keep my promise of investing small regular amount until then and maintain my blog as well 🙂
Inspiration of investing into index fund comes from Jack Bogle (Vangaurd founder), Warren Buffet (All time great investor) and Nasim Nicholas Taleb (Fooled by Randomness guy)