The ongoing debate around the inadequate financial literacy in this country continues. We often attribute this to the slow growth of our mutual fund industry, which still have a sea of investors who need to wake up to understanding the benefits of this industry. I ran a quick poll in my personal network of family & friends who are working professionals, many of whom belong to financial industry, asking the basic question “Where do you invest?” It’s surprising to hear that they too are busy in their day to day activities to park their savings in viable options. Direct equities are not a favorite among them as it’s not possible to diligently monitor the daily market movement. This is where awareness of the benefits of passive investing could be an eye opener.
The S&P BSE SENSEX in the last year has given a return of 20.73 % (One year Total Return as on 31st March, 2014), that is if we are looking at just plain vanilla market returns. The advantages in index returns are that there is no monitoring, it’s predictable and there is history on performance so your expectations are managed. The S&P BSE SENSEX provides you with the average market return, which comparatively, would seem more beneficial than savings bank or fixed deposits returns which are in fact net negative returns, if one were to discount them by the ongoing inflation rate. Index Investing also provides scope for diversification- sectors, themes, asset allocation strategies and if one were not interested in equities, there is also fixed income.
India currently has 25 Index Funds and nearly 39 ETFs. Minuscule compared to the global scenario, but a good range to choose from this growing trend. The government is providing necessary incentives to investors via tax incentives to first-time investors, reduction in STT on equity ETFs and inclusion of ETFs for the Rajiv Gandhi Tax Savings Scheme.
The incentive and options are actively being provided to create awareness on the various options and to ensure one recognizes the opportunity that lies ahead to make regular investing a habit. It is that simple!