There are some (good) ETFs - NiftyBeES (Nifty), Prudential SPiCE (Sensex) and a few others. GoldBeES is just going to start which tracks the price of Gld.

ETFs aren’t more volatile than the index - the way the ETFs in India are structured, there is very little arbitrage between the index value and the NAV of the fund. If you see NiftyBeES, it is 1/10th the Nifty and tracks it fairly well. The assets of this fund, which costs 0.8% as fees, and lower entry costs (brokerage @0.5%) than most other index funds (2.25%). The NAV is real time and is on their web site (at real time) and the market makers seem to close down any differences in the NAV to price. (Check out the ETF links on www.nseindia.com and www.benchmarkfunds.com if you want to learn more)

Some closed ended funds are listed on the exchange but those trade at a big discount to the NAV (time value of money). Those kind of funds have no market makers though.

Vanguard style funds just don’t exist - except perhaps the Quantum actively managed funds which have no entry loads. Vanguard style index funds are not available.

I am not familiar with the Indian market. Are there many ETF’s out there that track the Indian market indices or specific sectors?

The issue I see with ETF’s is volatility. You could have seen this in the recent 540 point drop in the DOW where the ETF’s plunged like crazy.

I would think a better option would be to buy into a low-cost index fund, similar to those initially started by Vanguard in the US. These would have less volatility due to the fact that the NAV would track the index closely, unlike an index ETF which would be priced based on expectations as well.

A famous brokerage company (in India) announced a “Technical PMS” which is basically a system that automatically punches day-trades and results in a profit. The minimum you needed was 5 lakhs, and the lock in was a quarter. The brokerage company only laid claim on the brokerage - 0.1% each way. After a quarter they delivered 2%. Their brokerage itself was some 5%!

Another one closer home: In December Birla Sun Life announced some mega dividends for a tax relief scheme. Dividends in mutual funds is basically your own money coming back to you, but obviously junta is excited. Birla’s only intention seems to be to increase the assets under management - and they have succeeded in taking it from 50 cr. before the announcement, to 300 cr. now. Fees are 2.5% of the Assets - which has moved from 1.25 cr to 7.5 cr. in two months, and returns still lag the index.

Looking from the other side: Consider a nifty index exchange traded fund called NiftyBEES. This is something that can be traded real time on the exchange and has low mgmt fees (0.8%) and lower transaction costs. Yet, this finds little favour with investors!

The idea of a “pure” profit sharing agreement would be nice, but would it make the managers too conservative, where they will try to lock in profit to meet their fees? The story about Walter Schoss’ unfaltering record proves it could be otherwise - he has, says Buffet, beaten the indices for 47 years.

But far more efficient than appointing managers is Berkshire Hathaway type companies. Such buy-and-hold investment companies are rare in India, but I hope there will be a few in the future that we can invest in.

Btw, Buffets letter is here:
http://www.berkshirehathaway.com/letters/2006ltr.pdf

Thanks for the link, Sanjay. *This* is a chairman’s speech - wow.