Actual Question:
Which are the
index ETFs in India with the lowest cost and tracking errors?
Answer:
Dear Friend!
Thank you for posing the
valuable question.
My answer is that I have not
gone into researching these two aspects as in my opinion the outcome of such a
research may not yield any significant benefits as the variance maybe minimal.
Now let us take each point
individually.
Lowest Cost of ETF:
While there is a huge cost
difference between an actively managed mutual fund and an index fund or an Exchange Traded Fund (ETF),
competition generally will force the cost difference within each class to be
negligible. To elaborate, the annual management fee for an actively managed
mutual fund is between 3.00 to 4.00 percent. The fund management fee for index
funds and ETFs is below 0.50%.
When we are talking about a
very, very long time horizon of investments of a minimum of 30–35 years, for
ETFs internally compounding at over 15% per annum, generating an unimaginably
huge wealth by the end of that period, a difference of 0.01 to 0.02 percent
between various ETFs is not going to matter much.
Lowest Tracking Error:
Basically tracking errors arise
when there is a time difference or gap between the change in the index and
implementing the corresponding change by the ETF in its own fund.
Again as already explained,
small tracking errors are not going to impact the results in any significant
way.
What the investor shall actually focus on:
What the investor should
actually focus on is work on own temperament and mental framework with respect
to the following important aspects of investment:
- Incase of small
monthly investments, making investments with strict discipline every
month, over such long periods like 30–35 years.
- To follow the
rule, “invest first; spend next” over such long periods.
- Keeping
investments absolutely intact, without disturbing, selling or liquidating
for 30–35 years.
Thank you,
With Best Regards
Anand
