Indian Equity Investing – Offshore Funds and Portfolio Management Schemes (PMS) give big losses,fool investors, trail benchmarks – Better off investing in ETFs
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May 31, 2011Indian equity investing through offshore funds might not be the best idea as these funds have underperformed the benchmarks by putting too much weight on infrastructure and capital goods sector.Note lured by the $500 billion investment target for Indian infrastructure,an Indian infra ETF INXX was also launched at a ludicrous valuation.However the endemic corruption in India with scams related to major infrastructure sectors like Real Estate,Telecom popping up everyday,its not a surprise that the stocks have tanked.Note investing in the Indian stocks markets is hazardous with issues like insider trading,pump and dump schemes quite rampant.The risks of corruption are huge and even top asset managers like Goldman,GMO have become victims of fly by night operators just like a simple retail investor.
India faces teething problems as it looks to invest heavily in the infrastructure sector.Institutionalized corruption,delays,bribery,petty jealousy between ministers all stand in the way.This has led to the darling infra stocks being shunned.Some of the popular Indian infrastructure stocks like GMR,GVK,Punj Lloyd,JP Associates have lost more than half of their value from the 2008 peaks.The less said about Real Estate stocks like DLF,Unitech the better.Note the CEO of Unitech is cooling his heels in jail with another top realty CEO Balwa in the 2G Telecom Scam.
Offshore Funds Trail Benchmarks ,Better off Investing Directly than paying high Manager Fees for Losing your Money
It might be a good idea to invest directly in the Indian stock markets through low cost ETFs like Nifty Bees than paying high fees for suboptimal performance from offshore funds.According to an ET report, 65% of the offshore funds have performed abysmally with HSBC India Infra Equity Fund, the worst performer in the ‘India fund’ category with a loss of over 17% in dollar terms.
Kotak PMS loses more than 80% of its corpus as it performs disastrously
Portfolio Management Schemes (PMS) had become the rage in the last couple of year as asset management companies in India had promoted them to offset the low fee structure in selling mutual funds.These PMS schemes had little transparency and high fees despite providing no expertise.The managers of these schemes were low level employees with little education or understanding.They collected large funds from investors and promised high returns through active management.Instead they lost money of their investors and charged high fees through a huge number of transactions.Some investment managers have also been alleged to have misused the power of attorneys given to them by clients. RBI and SEBI are taking measures to curb such practices.You can fool all people some of the time,some people all of the time but you can’t fool all people all the time.So the result is that these PMS schemes have failed with most investors taking out their money.
Kotak Securities’ PMS assets plunge 79% as poor returns force investor exits
Klassic Portfolio, a scheme under the discretionary portfolio scheme fell 22.91% during the period, according to a document in possession of ET. Core Portfolio declined 34.24%, Select Portfolio tumbled 23.81%, Select Portfolio-Large cap lost 22.44% in the three years to December 2010 when Sensex rose nearly 47%, while BSE Small Cap and Mid Cap indices gained 32% and 38%, respectively.
Assets of Kotak Securities’ discretionary portfolio management schemes, designed to provide higher than market returns, have plunged 79% in the last three years as returns fell below market rates, and even lower than schemes run by group mutual fund.Kotak PMS schemes’ assets with discretionary power fell to Rs 765 crore at end March, 2011, from Rs 3,576 crore on March 2007, documents available with ET shows. The assets under non-discretionary PMS have fallen to Rs 979 crore, from Rs 1,049 crore during the same period.
More Interesting Links on How to Invest in Indian Equities
How to invest in the India Stock Market where Managment Quality is a choice between Bad and Ugly
Top 5 Indian Stock Market Pitfalls as Nifty falls below 200 EMA(PIN,INP,EPI,INDY)
Indian Small Cap Index,ETFs (SCIF,SCIN) get Massacred by Surfeit of Scandals