[SmartCat]

Originally Posted by ridehard

Can you expand more on this point? I thought constant maturity gilt funds are better for the long term, as they usually hold more percent of govt. securities compared to normal Gilt funds.

Normal Gilt funds and Constant Maturity Gilt funds both hold govt securities - not more percent or less percent. But normal gilt funds hold short term gsecs too. If the fund manager of normal gilt fund believes that interest rates are going to rise, he can protect the fund's NAV by moving funds from long duration gsecs to short duration gsecs. That option is not available for the fund manager of constant maturity gsec fund.

At the end of the day, normal gsecs are less volatile than constant maturity gsecs. They are not THAT sensitive to rise (or fall) in interest rates. On the flipside, normal gilt fund will not offer huge returns like constant maturity gilt fund during global economic crisis. I prefer sacrificing little bit of returns for lower volatility (up and down movement of NAV).

[pradkumar]

Does this not carry the risk of the fund manager anticipating interest rate movements? The fund manager buys short term or long term g-secs based on what is his or her view of interest rate movements. Interest rate is probably predictable in the short term, but one can never say about long term. A lot of factors like oil prices, quantitative easing (resulting in flight of capital), natural calamities, pandemics, all come into play when it comes to bond yields.
There is also this theory that central banks resorting to rate cuts have not benefitted economic growth always. Some of the developed economies are good examples of this. Though, we can expect rate cuts in the next few years, it might not be a given.
Therefore, how do you see gilt funds in such a scenario?
Thanks,
Pradeep

Originally Posted by SmartCat

At the end of the day, normal gsecs are less volatile than constant maturity gsecs. They are not THAT sensitive to rise (or fall) in interest rates. On the flipside, normal gilt fund will not offer huge returns like constant maturity gilt fund during global economic crisis. I prefer sacrificing little bit of returns for lower volatility (up and down movement of NAV).

[SmartCat]

Originally Posted by pradkumar

Does this not carry the risk of the fund manager anticipating interest rate movements? Interest rate is probably predictable in the short term, but one can never say about long term. Though, we can expect rate cuts in the next few years, it might not be a given. Therefore, how do you see gilt funds in such a scenario?

Figuring out where the interest rate will be in short and long term is part of fund manager's job responsibilities. Remember that all debt funds (except liquid/overnight funds) carry "interest rate risk", and it involves the fund manager taking a call on future rates. That's why mutual funds charge 0.5 to 1% per year as expense ratio.

[bullrun87]

I always like to think of constant maturity gilt funds as passive funds and simple gilt funds as active funds where fund manager takes a call on duration. Like most passive funds, constant maturity funds have on average lower expense ratios. Both types of funds have standard deviations ranging from 3-5 which is conservative hybrid/ equity savings territory. On comparing rolling returns both give similar returns so one can choose either category but these funds are only suitable for atleast 5 year horizon due to high volatility. For less than 5 years corporate bond funds and banking and psu debt funds offer much lower volatility

[carboy]

Active vs Passive funds - This is the full report for 10 year performance

Below is the crux - majority of active funds performed worse than the index.



Compares Large Cap Equity Funds, ELSS Funds, Mid/Small Cap funds, Govt Bond funds & Composite Bond funds with their respective indices

[carboy]

On Friday - Nifty's High was 10159.40 & low was 8555.15 - That's a really huge spread - like 16% to 18% (depending on how you calculate it). Likewise NAVs of Mutual Funds would have also had such spreads if they were actually calculated through the day.

The point being if you had placed an order for a Large Cap MF or a Nifty Index MF in the morning before it crashed the lower circuit breaker, you would have got a NAV which was like 15% higher at the end of the day!

This is really high volatility.

ETFs are the only way to be protected from this. Theoritically, even active funds can be in the form of ETFs - Some markets in Europe have given permission for actively managed ETFs also but I don't think anyone has started one yet. For now, Index ETFs or stock picking seem to be only way to avoid bearing the brunt of such volatility where you have no clue at what price you are buying or selling.

[earthian]

Originally Posted by carboy

The point being if you had placed an order for a Large Cap MF or a Nifty Index MF in the morning before it crashed the lower circuit breaker, you would have got a NAV which was like 15% higher at the end of the day!

I don't believe that is right. MF's NAV are calculated on a complete day basis. ETF's however would be on time of trade basis.

[DigitalOne]

Originally Posted by earthian

I don't believe that is right. MF's NAV are calculated on a complete day basis. ETF's however would be on time of trade basis.

What Carboy states is right. MF have a "cut-off" time (3 PM IST). Any purchase requests made before 3 PM will have the NAV of the previous date.

ETFs are traded on Price and not on NAV. There is an day-end NAV which would be calculated based on the day-end price of underlying securities and which is different from the price .

[SilentEngine]

Originally Posted by carboy

Active vs Passive funds - This is the full report for 10 year performance

Below is the crux - majority of active funds performed worse than the index.

Not questioning the numbers, but want to understand more on what the report is really trying to convey.

Is it right to look at percentage of funds without considering their AUM or the inflows to those funds?

In any fund category, AUM of the funds and inflows to those funds vary. So ideally one should be looking at weighted performance based on AUM or inflows in the time period. Otherwise a fund with a very minuscule AUM and another with a high AUM get equal weightage in the "percentage of funds" calculation.

If the report is trying to suggest that investing in index (passive index funds) is better than investing in active funds, then i don't think "percentage of funds" is the right criteria to look at. It should say something like this: X% of fund inflows to active funds failed to beat the index. Then the report would be a lot more meaningful.

[carboy]

Originally Posted by earthian

I don't believe that is right. MF's NAV are calculated on a complete day basis.

Yeah, they are calculated on end of day basis. That's why what I said could happen. On Friday morning, thinking that the Nifty has crashed by 10%, you could place an order, but when it gets executed at EOD NAV, your order would be 15% costlier than what the NAV would have been when you placed the order.

Originally Posted by DigitalOne

Any purchase requests made before 3 PM will have the NAV of the previous date.

No, I think if you place before 3pm, you will get today's EOD NAV for equity funds. For liquid funds, if you place it before 1:30 pm, you get previous day's NAV.

Originally Posted by SilentEngine

Not questioning the numbers, but want to understand more on what the report is really trying to convey.

I think the report is trying to convey that the probability of one picking the correct actively managed fund which beats the index is not that high.

[Oxy]

Originally Posted by woof

You can use simple tools like on value research online to track your portfolio at a single place.

Sir, can you possibly throw some light on this?

How exactly do you track your investments on value research?

[graaja]

Originally Posted by Oxy

Sir, can you possibly throw some light on this?

How exactly do you track your investments on value research?

If you create an account with Value Research, you will have a section "My Investments". Here you can create your portfolio by adding your MF holdings. You can set up SIPs, SWPs, STPs etc. And you can see lots of analysis like 1 day change, 1 month change, or 3 months change, annualized returns etc.

[DigitalOne]

Originally Posted by carboy

No, I think if you place before 3pm, you will get today's EOD NAV for equity funds. For liquid funds, if you place it before 1:30 pm, you get previous day's NAV.
.

Yes, you are right. Thanks for the correction.

[warrioraks]

Interesting read for someone who is looking to invest in equities right now. I am doing so as well from a relatively long term perspective.

https://www.google.co.in/amp/s/m.eco...w/74647125.cms

[anandhsub]

Originally Posted by carboy

On Friday - Nifty's High was 10159.40 & low was 8555.15 - That's a really huge spread - like 16% to 18% (depending on how you calculate it). Likewise NAVs of Mutual Funds would have also had such spreads if they were actually calculated through the day.

The point being if you had placed an order for a Large Cap MF or a Nifty Index MF in the morning before it crashed the lower circuit breaker, you would have got a NAV which was like 15% higher at the end of the day!

This is really high volatility.

ETFs are the only way to be protected from this. Theoritically, even active funds can be in the form of ETFs - Some markets in Europe have given permission for actively managed ETFs also but I don't think anyone has started one yet. For now, Index ETFs or stock picking seem to be only way to avoid bearing the brunt of such volatility where you have no clue at what price you are buying or selling.

I am one of those who got squeezed on Friday when I put some lumpsum in a fund thinking I will get an nav with nifty around 9100 and eventually got one closer to 10000. Hence was thinking of putting money in the Niftybees ETF today. However at one point when the nifty was 6% down the ETF was only 4% down and hence I backed off. Finally at close nifty was down 7% which this was down around 2%. What causes this kind of mispricing in a fund that's so liquid?