4 Metrics to choose the best index funds and ETFs

“Which equity fund should I buy?” When asked an open-end question like this, most financial experts recommend an index fund. Choosing an index fund is supposed to be far easier than choosing an active fund from the hundreds of schemes. But the number and variety of index funds in India has mushroomed too. There are about 94 open-end equity index funds, while over 120 equity Exchange Traded Funds (ETFs) are listed on the exchanges. So, if you’re thinking of buying an index fund, how do you choose the right one? Here are four metrics to choose the best index funds and ETFs.

5 reasons to avoid PSU ETFs

The list of top performing equity funds for the past year features a couple of unusual entries. With a return of 18-21 per cent, CPSE ETF (managed by Nippon India Mutual Fund for the government of India) and the Bharat 22 ETF (managed by ICICI Prudential Mutual Fund) are top rankers among equity funds.
This has many investors asking if they should add these passive funds to their portfolio. The portfolios of CPSE and Bharat 22 ETFs are made up of the PSU oil, energy and financial giants which are the flavour of the season. These ETFs’ costs are ultra-low because they are used as divestment vehicles. Both ETFs would also seem to be ‘value buys’ if you go by their ultra-cheap valuations. The CPSE ETF trades at a portfolio PE of 7 times and Bharat 22 ETF at about 11 times. This is a fraction of the current Nifty50 PE at over 21 times.
But does this make them worth betting on? There are five good reasons for long-term stock investors to steer clear of these ETFs.

Quarterly review: Changes to recommendations in Prime Funds & Prime ETFs

Prime Funds is our list of recommendations in equity, debt, and hybrid mutual funds that are worth investing in. Prime Funds narrows down your choices from the thousands of funds that there are, into a concise list of funds that span different styles. Prime Funds are selected based on performance, portfolios, and investment strategies.

In this quarter’s review, we have added to equity funds to play themes that are ripe and made changes to the hybrid recommendations to include better return options. We have made minimal changes to our debt fund recommendations.

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Quarterly review – changes to recommendations in Prime Funds & Prime ETFs

Prime Funds narrows the choice of the thousands of funds out there in the market into a list of 50-60 funds that you can pick from to invest. This quarter we have made some additions to gain from the renewed strength that the equity market is exhibiting, the recession fears in the US notwithstanding. There are some additions in the debt space as well, as yields moved up.

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International funds – what are your options now?

Funds investing internationally were the flavour of the season all of last year. That changed in February this year, when funds hit the ceiling set by the Reserve Bank on how much they could invest in overseas securities. When we first explained the scenario, expectations were that this cap would be increased in due course and international funds could open up again.

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