In India, over the past few months, investors have seen their investments erode in value. All asset classes are highly correlated and a simple debt plus equity diversification does not help either with the returns or with lowering volatility. In this scenario, Index based investing as a part of larger asset allocation strategy is now beginning to gain ground among advisors and investment advisory platform alike.
Using index ETFs’ gives the advisors several advantages – the investment and holding is transparent, low cost and comes with the credibility of the Index owner / calculating agent. Furthermore, most indices come with built in RIC and UCITS compliance thereby ensuring optimal diversification within and reducing company specific risk.
In turbulent and for institutional investors looking at both temporary exposure as well as complex quantitative strategies, index investing is both more efficient from a risk perspective as well as significantly cheaper.
In India, with the advent of foreign index based investment avenues, Private Bankers as well as Independent Financial advisors have shown a keen interest in indices. These allocations form a part of return enhancement as well as risk mitigation strategies for bespoke portfolios.
Some challenges do remain and these are primarily regulatory. Currently Insurance companies and pension funds have significant restrictions placed on them for index exposures. However, these are expected to be resolved in the near future.
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