Index Funds Vs ETFs | The Mutual Fund Show | NDTV Profit
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00:00 and ETFs ahead on the show to tell you which is a better choice. And of course, take a
00:05 few of your queries. But let's start with part one, where we're focusing on crystals
00:10 quarterly rankings, ending with December 2023. Piyush Gupta is joining me now he is director
00:16 funds research at crystal market intelligence and analytics. Piyush great to have you on
00:21 NDTV profit. Great to speak with you on the show. Let's begin by getting an overview of
00:26 your rankings. Have there been any big changes you've seen in the quarter gone by? I think
00:36 you're on mute Piyush we can't quite hear you. Piyush? Yeah, hi Tamannaah. There you
00:54 are. Superb. Yes. Should I repeat the question? We wanted to know if there was any big changes
00:59 this quarter? Yeah, so there are a few changes in the ranking. Of course, when we look at
01:06 ranking over a period of time, there are few consistent performers. Depending on the category,
01:12 we can look at some of the examples where there have been big changes and we can talk
01:17 about them. Let's start with flexi caps. Let's start with the flexi cap category. This is
01:22 one that has been a very popular one in terms of new launches as well from the EMCs. How
01:29 have they fared overall? What has been the average return and which are the top performers
01:33 and the bottom performers? Right. So flexi cap as a category and before I get into the
01:39 ranking a quick overview on the criteria or the parameter that we typically look at when
01:45 we carry out these rankings. So the ranking comprises of one parameter on performance
01:52 historically measured using rolling return. Second being the volatility which is used,
01:59 which is measured using standard deviation as a parameter. Then we look at three portfolio
02:05 based parameters which is diversification of portfolio at a sectoral level, company
02:10 level and third being the liquidity of the underlying portfolio. So all of these factors
02:16 are looked together before we arrive at the final rank and funds who fare well in most
02:22 of these parameters tend to come on top. And given that we look at we are looking at equity
02:28 funds here, there is a higher weight which is given to the past performance and hence
02:33 they tend to play a major role when it comes to the final ranking. Now, flexi cap as a
02:39 category I think it's one of the largest category within the equity mutual fund space. The inflows
02:47 have been positive consistently for this particular category. When we look at the ranking of funds
02:53 within this category what we have seen is Bank of India flexi cap, J.M. flexi cap and
02:58 SGFC flexi cap are the top ranked funds for the quarter ending December. Bank of India
03:05 and J.M. are rank 1 and SGFC flexi cap is rank 2. The bottom ranked funds are Motilal
03:11 Oswal, UTI flexi cap and Axis flexi cap. These funds are ranked either 5 or 4 in the flexi
03:18 cap category. Okay, what are the key drivers and rankings say in your mid cap and small
03:26 cap category Piyush? Right, so in case of mid cap category again if you were to look
03:36 at the rankings the top performers are Nippon, HGFC and Mahindra while the bottom performers
03:43 are UTI, Axis and PGIB. Specifically when you look at the top performer we have seen
03:49 that Nippon has been consistently in the top ranked category over a period of time. The
03:55 top performer is ranked either 1 or 2 in the last 5 quarters. Same is the case with HGFC
04:00 mid cap opportunities. Mahindra has seen an improvement in ranking in the last couple
04:07 of quarters and it is now getting ranked 2 in the latest quarter. In case of bottom ranked
04:13 funds, funds like UTI, Axis and PGIB they have been in the bottom ranked for most of
04:22 the last 5 quarters. If you look at Axis, the fund has remained either 4 or 5 in the
04:27 last 5 quarters. PGM in fact has seen a decline in the ranking. It used to be ranked 2 more
04:35 than 1 year back. Now it has gradually come down to 3 and eventually is now ranked 5 in
04:40 the latest quarter. So go ahead, I was talking for example for an Axis, while you are right
04:49 there at number 5 in your ranking, one of the parameters as you explained in your opening
04:53 comments is volatility. So for investors who are watching this and are looking at a 1,
05:00 2, 3, 4, 5 sort of ranking, to what extent is it important to take that into concern
05:06 as well? Because in your overall weightage I think volatility of the fund accounts for
05:10 25%, doesn't it? Yes, yes. So in terms of the parameter weightage, performance of course
05:18 has a weight of 50%, volatility has a weight of 25% and then remaining weights are assigned
05:25 to the concentration and liquidity parameter. When we look at the ranking outputs, especially
05:32 in the equity category, what we find is performance becomes a key driver for the final ranking
05:39 eventually and when we look at Axis specifically, as an example what we have seen is the fund
05:46 is ranked 5 in the return parameter and to that extent that has a major contribution
05:54 when it comes to the final outcome of the ranking. The volatility of course for the
05:59 Axis Mid-Cap Fund is lower compared to the other funds within the category but it's the
06:06 performance where the fund has actually underperformed the benchmark as well as the category over
06:11 a long period of time. On top of it, the fund also has a concentrated portfolio and which
06:19 is where on a concentration parameter the fund ranks lower, especially on the diversification
06:25 at a company level. Further, the fund size is close to 23,000 crore which also hampers
06:32 the underlying liquidity of the portfolio. Let's talk a bit about small cap funds and
06:37 what their ranking has shown you. This has again been a volatile space but a high return
06:42 space. Have you seen consistency here in the rankings? Yes, so when I look at small cap
06:49 as a category, Nippon, Franklin and Quant small cap are the top ranked funds. Nippon
06:54 is ranked 1, Franklin is ranked 1 and Quant is ranked 2. When I look at the historical
07:00 ranking for say Nippon, Nippon is in fact ranked 1 in the last 4 consecutive quarters
07:06 and even before that the fund was ranked 2. When we look at Franklin Templeton, the fund
07:13 has been ranked 1 in the last 2 quarters and before that, in the previous 2 quarters, the
07:20 fund was ranked 2. So to that extent, Nippon and Franklin have been consistent in the ranking
07:26 in the last 5 quarters. Quant small cap used to be ranked 1, even then in one of the quarters
07:35 it moved to rank 3 and now currently it is ranked 2. So this is an important sort of
07:43 ranking to track in the simple reason to actually see where your funds are going. Having said
07:49 that, it's not an absolute thing that if a fund's ranking falls one quarter then you
07:54 should jettison it completely. Take a more wholesome or holistic view on what to do with
07:59 your funds. Nevertheless, all information is welcome when it comes to picking the right
08:04 funds. Thank you so much Piyush for joining us today. Piyush Gupta of Crystal there on
08:08 their quarterly ranking. We're taking a very short break but don't go anywhere because
08:12 on the other side we're taking your questions. We're also talking about whether you should
08:16 go in for an index fund or an ETF which could work better for you.
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11:54 Welcome back. You're watching the Mutual Fund Show. We're talking in this segment about
11:58 index funds and comparing them as an option to ETFs. Mohit Gang, co-founder and CEO of
12:03 Moneyfront is joining me on this. I'm also speaking with Amol Joshi. He is founder of
12:07 Plan Rupee Investment Services. Mohit, Amol, welcome. Great to speak with you. Mohit, let
12:12 me begin first with, you know, your basic take of why index funds are preferred perhaps
12:19 more by retail investors and how would you compare the two?
12:23 Hi, Tamanna. Always a pleasure to be on your show. So look, I think index funds as an option
12:29 are fairly easy to be done by retail investors. To be doing an ETF, obviously you need to
12:35 have a DMAT account. You need to also have a broking account. Through a broker, you will
12:42 have to execute your transactions or perhaps you will do it through an online platform,
12:47 right? In index funds, the good part is the liquidity and the pricing is guaranteed by
12:52 the fund house. So for a retail investor, it becomes fairly easy and convenient to enter
12:56 and exit an index fund. You can enter via an SIB, which again is not possible when you're
13:01 buying ETFs unless your broker specifically provides you that facility. In terms of liquidity
13:05 also at the closing day price, which is the NAV, which is declared by the fund house,
13:10 a retail investor can any day exit an index fund. To exit an ETF, you will have to execute
13:15 a transaction on the exchange. And sometimes because of the liquidity issues, the bid-ask
13:20 spread can be fairly wide when you are trying to sell an ETF. But through an index fund,
13:25 you're always guaranteed an exit by the fund house. So to my mind, honestly, if you keep
13:31 aside the factor of cost, I think an index fund is always more advisable. If you are
13:36 entering through an SIP route or if you're trying to do smaller amounts gradually and
13:41 build up your corpus, an index fund for retail investors is the most advisable and preferred
13:46 route. Okay, so index fund is preferable for retail investors. But Amol Joshi, the counter
13:52 argument could be that it costs less, your transactional costs are less. In an ETF, you
13:58 don't have to give the fund any fees. Why not go in for an ETF, which also you can settle
14:04 quicker and gives you the advantage of movement through the day? Right, Tamanna, absolutely.
14:10 This is a fair point. Let's break the answer into two parts. Part number one is about the
14:15 cost. So if I take the largest fund house, SBI, they also have the largest ETF because
14:20 of EPFO investments and their own nifty index fund. The difference is about 25 times. ETF
14:26 is 25 to 30 times bigger in AM than the index fund. But the cost differential is not more
14:31 than 15 to 17 paisa or 15 to 17 basis points. So in other words, if ETF delivers all other
14:38 things remaining constant, if ETF delivers 12% return for you, this fund will deliver
14:43 15 basis points less, that is 11 point about 85%. That's not much of a difference, I would
14:50 say. And the convenience aspect of, as my co-panelists already mentioned, that you will
14:56 not be able to execute SIP seamlessly in ETF. And most of the retail investors, as we have
15:01 been seeing for the last several years, prefer the SIP route to enter into equity. That's
15:05 about the cost part. It's not very significant. There is also the thing about bid and ask
15:10 spreads. ETF gets INAB declared at every live in the market, but you'll hardly find liquidity
15:19 for buy sell transactions in ETF at the same price. So that takes care of the cost aspect.
15:24 And second aspect is about, you mentioned intraday liquidity. So intraday liquidity
15:30 is fine, but we should understand that most of the ETFs or commonly we will talk about
15:34 are equity funds. And equity, as we all know, and your channel also has said this many times,
15:38 is a long term investment asset class. So in my opinion, it does not really matter if
15:44 you are investing for a three or five year horizon, and you end up making purchase on
15:48 Monday end of the day, NAV via index fund, or Monday, let's say 11.15am via ETF. It does
15:54 not really matter. It is a long term asset class. If you are going to stay three to five
15:58 years, intraday liquidity should be least of your concerns.
16:03 That's fair enough. Having said that between the two, Mohit, you are very clear that for
16:09 retail investors, index funds are a better option. What is the scenario or what is the
16:16 base case for an ETF, if at all? And which in these two categories do you like specifically
16:22 index funds and ETFs? If someone were looking to start off in both categories, what would
16:28 you suggest?
16:29 Okay, look, Tamanna, so the case for ETFs is also fairly strong for very, very extremely
16:37 savvy ultra HNI investors. Look, an ETF gives you a benefit that when you are transacting
16:44 on an exchange, the costs incurred in that transaction are borne only by the person who
16:50 is executing the transaction. Unlike in fund, what happens is if a fund buys and sells any
16:56 stock, the cost of that transaction is borne by the entire set of investors who are invested
17:02 via that fund. So ETF solely appropriates the cost to the person who executes the transaction,
17:09 which gives ETF an inherent advantage that the taxes and the costs are not borne by the
17:14 entire set of investors who are sitting patiently and just holding the fund for a long term.
17:20 Second is that intraday case for traders who would want to trade on indices. Basically,
17:27 I think ETF gives a great opportunity to enter at a particular price point and exit at a
17:31 particular price point. But as my colleague Amol rightly said that it's not very easy
17:35 to time the markets and for people who are investing for long term, perhaps that's not
17:39 the right way of doing it. Yet, I understand that there might be a trading class who wants
17:43 to make good of the intraday price movements. And that's where the thing comes into play.
17:48 And the third and the last category of investors who might want to consider ETF is the investors
17:53 who are extremely, extremely cost conscious. ETFs will definitely give you that 2, 3, 5
17:59 bips added advantage on the cost. Even if you account for the transaction costs, the
18:04 broking costs, the STTs and other things which are involved in an ETF trade, they will give
18:09 you a slight bit of advantage over the index funds. But I think that is negated by the
18:13 convenience part and other parts which an index fund provides. For me, the call is very
18:17 clear. I would always prefer an index fund. But for an extremely savvy investor who wants
18:21 to make good of the intraday prices, I think an ETF might be a preferred choice.
18:26 And your preferred or your most recommended ETFs and index funds, Mohit, let me start
18:32 with you.
18:33 Look, for a fairly long while, we have been strong proponents on the large cap side to
18:38 only go in the passive style of investing. So out there, a Nifty 50 index fund from a
18:43 Proo ICICI fund house or Panthan Nifty 50 index fund are our preferred index funds out
18:48 there. On the mid cap side, we like the factor based indices a little more. So the UTI Momentum
18:56 30 and the DSP Quality 50 are two preferred indices again out there. So those are my preferred
19:02 choices.
19:03 Amol, very quickly, do you want to tell us your preferred choices? One for ETF, one for
19:08 an index fund?
19:09 Certainly. In large cap space, nothing beats SBI Nifty ETF. It has the largest AUM and
19:15 it is, you know, it just tracks the index. So you go with the lowest cost, that's SBI
19:20 ETF for you. And for index fund, you can look at probably UTI Nifty 50 index fund.
19:26 Okay. Okay. All right. So those are your options for index funds or ETF. And now, one of my
19:34 favorite parts of the show, which is where we take your queries. So let's start with
19:38 this question that Noel has sent us. He's 22 years of age. He says his current investments
19:44 are 3000 rupees every month and he puts it each in the following funds. And he's been
19:50 doing it since the last 18 months. Good for you, Noel. Excellent discipline, Quant Small
19:55 Cap Fund, Quant Momentum Fund, the HDFC Mid Cap Opportunities Fund and the Parag Parik
20:02 Flexi Cap Fund. So and the SBI Contra Fund. So some very good choices there. Now, here's
20:08 the query. I'm planning to move from the HDFC Mid Cap Opportunities Fund to either Quant
20:12 Mid Cap Fund or the Edelweiss Nifty Mid Cap 150 Momentum Fund due to their growing AUM.
20:19 So I want to compare these two with the HDFC Mid Cap Opportunities Fund. All right, let's
20:25 get Amul to fill this first. Hi, Tamanna. So based on the details that Noel has shared
20:31 with us, so Noel, you're right. There is significant gap between AUM, Asset and Management of HDFC
20:37 Mid Cap Fund compared to Quant Mid Cap Fund. But at the same time, if you look at their
20:41 two year and 10 year performance, HDFC Mid Cap has done better and over a three year
20:46 and five year, Quant has done better. So I would say that AUM, so let's address this
20:51 elephant in the room. AUM so far has not been the detrimental factor. You know, even if
20:58 we have funds that have tens of thousands of crores, some of the schemes are 50 to 70
21:03 thousand crore in large cap space or even hybrid space. So AUM is not really the constraint.
21:07 In one line, you can just remember, always remember as the fund AUM has grown, so has
21:12 the market cap or the entire market cap of the listed universe. That's point number one.
21:17 Point number two, you want to compare these three schemes. I would say Quant Mid Cap and
21:22 HDFC Mid Cap is slightly a fair comparison, but that is not the case if you compare a
21:27 momentum as you know, it's a factor based, it is not exactly in the same category. So
21:33 this fund also does not have a track record. If you are purely comparing based on performance,
21:37 which you should not do, but if you are, then you will not find a performance history for
21:41 the momentum fund. Coming back to choosing between HDFC Mid Cap and Quant Mid Cap, Quant
21:47 scores better on the price to book, price to earning, which are valuation parameters
21:53 in a fund, but at the same time, it has a very high churn rate. So if you are fine with
21:57 higher AUM size, I would suggest you stick with your existing set of funds, review them
22:03 annually and only if you find a cause for concern based on performance compared to the
22:08 peer group or benchmark only, then there is a need to shift. Otherwise, if you want to
22:13 shift to a momentum fund, then probably you can look at Edelweiss Momentum Fund Mid Cap
22:17 150, but otherwise you can stay put with the HDFC Mid Cap. All right, so stay with HDFC
22:22 for one. An important point that AUM may not be the right parameter. Another question from
22:27 Abdul Mujib Qazi. He says he has done a lump sum investment of Rs 5 lakh each in two small
22:33 cap funds, one manufacturing fund and one mid cap fund. His query is, I am looking to
22:38 diversify into sectoral or thematic funds and close one of my small cap funds. Please
22:44 suggest those other than mid and small caps for a horizon of 5 to 8. I am going to take
22:49 this question to Mohit. With the point about why sectoral or thematic funds have been so
22:55 popular and should you close out a small cap fund to move to one of these?
22:59 Okay, look, Tamanna, I think this is a fad which has been in vogue for last two years
23:04 now. I think there is a lot of temptation going out there or perhaps the FOMO factor
23:08 that people really want to be in small caps, mid caps and sectoral funds. Look, my suggestion
23:13 to Mr. Qazi is that sectoral funds are extremely difficult to track. You might perhaps make
23:20 an entry into one or two sectoral funds, but you will inevitably get it wrong when to get
23:25 out of those sectoral funds. The sectoral cycles rotate and change extremely fast. So
23:30 perhaps you might fancy a PSU cycle, but just to give you some perspective, last year PSU
23:36 PAC gave 23% return and prior to that it gave 79% return. But if you track a full 10-year
23:42 period of PSU performance from 2016 to 2019, there were consistently four years when they
23:48 gave huge negative returns. And in the back of full 10 years, there have been over six
23:53 years when the PSU PAC has given negative returns. So sometimes things which look quite
23:58 fancy because of a momentum play in the market might not be the right thing. My suggestion
24:02 is that you continue with your small cap and mid cap allocations, continue building them
24:07 through your SIP or STP vehicles. But instead of going for a sectoral fund, I would rather
24:12 suggest that you go in for a large cap fund in your portfolio. Your portfolio currently
24:16 doesn't have a large cap fund. And my suggestion will be to go into a passive large cap index
24:21 fund out there. You can choose between a Proo ICSA Nifty 50 index fund or a Bandhan Nifty
24:25 50 index fund. But I think every portfolio should have a good concoction of large cap,
24:31 mid cap and small cap and perhaps one small tactical pay, which could be an international
24:35 fund or a commodity fund or something like that. But it is absolutely essential to have
24:39 large, mid and small in good proportion.
24:41 Well, like a well-balanced meal, you need to have a well-balanced portfolio. Thank you
24:45 so much, Amol and Mohit for joining us on the show today. That's all the time we have.
24:49 But remember, do send in your queries so we can take them up on this show every day at
24:54 1.30, Monday to Friday. Thank you for watching.
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29:21 Hello and welcome. You are watching Earnings Edge here on NDTV Profit and the first company
29:35 that we are going to be talking to is Borosil Renewables. Well, it's been a couple of challenging
29:40 quarters largely because of dumping and we are going to talk about that, the implications
29:46 on the company as well as what we can expect going forward. And for that, we have with
29:50 us Mr. Pradeep Kumar Kheruka. He is the Chairman of Borosil Renewables. Mr. Kheruka, good afternoon.
29:57 Thanks for joining in. We know that the company has had to go through the implications of
30:04 dumping because of which we had a severe erosion in your EBITDA and thereby leading to a bottom
30:10 line loss coming through. Can you tell us about whether or not there is light at the
30:15 end of the tunnel and when? Can we in fact expect the company to go back into the black
30:21 considering the current conditions? I believe that there are two aspects to it besides the
30:26 lower prices. We are also looking at increased interest costs as well. Can you take us through
30:33 some of these challenges at the moment?
30:35 Sure. Thank you. So, the fact is that the exemptions from payment of import duty on
30:45 solar glass were to have come to an end on the 31st of March 2023. The government in
30:54 its wisdom decided to extend it by a year, last year, and these were now set to come
31:00 to an end on the 31st of March 2024. For the whole year, we have been petitioning the government,
31:07 showing them that there is a lot of dumping going on, that the prices of solar glass being
31:13 imported from China have suffered a steep decline while the prices of inputs, the commodities
31:20 that are used to manufacture the glass have actually registered a sharp rise. So, this
31:25 is paradoxical where the cost of inputs is rising and the price of sales is declining.
31:32 It's clearly a predatory move designed to