28 Jun 2024

Some thoughts on SPIVA reports

SPIVA reports are a popular data point that proponents of index investing use to show how actively managed portfolios are doomed to underperform the broader market. Without going into the active vs passive debate, I want to put forth a few concerns I have about SPIVA reports.

  • Conflict of interest. SPIVA reports are published by S&P Global—a for-profit organisation that creates and maintains indices. When AMCs launch index funds tracking S&P indices, the AMCs pay S&P to get access to the index data.
        The more index investors are in the market, the more money S&P Global makes. Of course, S&P will show index funds in a positive light.
  • Factor indices are conveniently excluded. In addition to market-cap weighted indices, S&P (and other index curators) also publishes factor indices. You know, the likes of Low Volatility, Alpha, ESG, etc indices. While they are dressed up like passive indices, they have a lot of resemblance to active portfolio construction.
        These indices can and do underperform the broader market regularly. But funds tracking such factor indices are not evaluated by SPIVA reports.

I am not asking anyone to ignore SPIVA reports. Nor am I calling S&P’s intentions bad. All I am saying is that index funds don’t become great just because SPIVA reports praise them year after year.

If an electric car maker publishes a report of how petrol/diesel cars are bad for us, how much trust/skepticism would you have on that report? A similar level of trust/skepticism is warranted for SPIVA reports too.

27 Jun 2024

A fine line between acceptance and denial

I messed something up at work. This is a kind of mistake that I seem to keep repeating. It hasn’t been easy to forgive myself and move on. At one point, I started thinking if I should leave this job and move to a different team. “I am not anyway good at the skills needed for this role,” I thought, “so why not just find a different role?”

I have done this before—moving to a different role that aligns better with my existing skills. But in recent months, I have been thinking about the concept of “I”. In particular, the descriptions we give ourselves such as, “I am good at math,” “I am not very good with people,” etc. I have been trying to separate actions and behaviours from the person. Because of this, I almost immediately rejected my assumption/description that I was not great at my current job.

We change over time. I have gotten better at things that I was not very good at. I have started liking things that I used to dislike. It is only temporary that certain things are hard to do. I can get better if I tried. Understanding this has, thankfully, stopped the “I am bad at this” narrative in my own mind. However, now I am stuck at the next stop.

I agree this is just a skill. I agree I can get better at my current role. But why should I get better? Why not just take up tasks that don’t require so much effort?

What is preventing me from putting in the effort to get better? Hard to tell for sure, but 2 things come to my mind:

  1. Fear of failure. In the past, I have shied away from new things because (unconsciously) I was afraid to fail. If I never try something, I never fail at it, right?
  2. It feels futile. The “I don’t need to do this to prove my adequacy” narrative.

While reason #2 may sound like acceptance, it is, in fact, denial. Earnest attempts to improve requires accepting that there is room for improvement. Thinking “I am fine as I am” is denial. If I truly thought I was fine, I wouldn’t be brooding over the mistake I made at work.

Such denials are a hindrance for growth. But the good news is, awareness is (almost) all we need for shaking off such denials.

18 Jun 2024

Indexation can significantly reduce our tax liability

I invested in HSBC Ultra Short Duration debt fund while indexation benefit was still available to debt mutual funds. (Back then this fund was run by L&T. HSBC then merged this fund with their own Ultra Short Duration fund.)

As you can see from this screenshot, I have an unrealised gain of ₹3.12 lakhs.

Screenshot showing unrealised gain of ₹3,11,971

Kuvera has a premium feature called TradeSmart which shows estimated capital gain/loss before placing a redemption order. If I were to sell all my holdings of this fund, Kuvera tells me, I’ll have taxable long-term gain of ₹12,615.

Screenshot showing taxable gain of ₹12,614.83

How did the gain of ₹3,11,971 diminish to mere ₹12,615? Thanks to the magic of indexation.

Turns out, indexation substantially reduces tax liability of slow growth assets. Indexation is useful for fast growth assets too, but the impact is dramatic if the growth is slow.

In my case, if indexation benefit was not available, I would be liable to pay ₹93,591 (+ 4% cess) at 30% tax rate. But thanks to indexation and reduced 20% tax rate, my tax liability reduces to ₹2,523 (+ 4% cess).

Change in my attitude towards taxation

All this while, my stance was to pick the right asset without worrying about taxation. “Tax is inevitable, so just pay it,” I thought. But seeing these numbers has been a revelation. I had no idea indexation could make such a drastic difference.

I was dismissive of new “debt like” mutual funds that use fancy portfolio construction to qualify for indexation benefits. But I am not so sure anymore. I think I’ll give the Edelweiss Multi Asset Allocation fund a serious consideration. Even if this fund earns lower return than dynamic bond funds, I’ll likely end up with more after-tax corpus thanks to indexation.

5 Jun 2024

My experience ‘buying the dip’

Indian equity market fell hard on 4-Jun-2024 following the apprehension caused by the parliamentary election results. The Nifty 500 index fell by 6.71% in a single day.

My regular equity investment was due, but I was waiting to take care of some pending expenses. Seeing the index fall so much in a day, I decided act quickly. I pumped the money in to “buy the dip”.

Motilal Oswal Nifty 500’s NAV fell by 6.7% in a day. (Graph from ValueResearchOnline)

Investing as soon as I saw a big fall was a knee-jerk reaction. I hadn’t really thought through the impact of such an investment. During the whole day, I was consumed by thoughts about the election result and what it meant for the future of the country. Only much later, I looked at the NAV graph to see what this 6.71% discount meant.

To my surprise, this fall hadn’t even brought the fund to its 30-day low! The fund’s NAV on May 9th was ₹23.2971; the NAV after the June 4th’s fall is ₹23.3253.

Motilal Oswal Nifty 500’s NAV on 9th May was ₹23.2971. (Graph from ValueResearchOnline)

Expanding the horizon to 3 months, we see that the NAV on 19th March was ₹22.4901.

Motilal Oswal Nifty 500’s NAV on 19th March was ₹22.4901. (Graph from ValueResearchOnline)

Going back 6 months, the lowest NAV has been ₹21.3039 on 5th December 2023.

Motilal Oswal Nifty 500’s NAV on 5th December was ₹21.3039. (Graph from ValueResearchOnline)

If I had deployed my cash on 5-Dec-2023, my investment would have grown by 10.32% despite the fall on 4th June.

I already wrote about the futility of trying to buy the dip, and the current fall only reaffirms what I already knew. Sitting on cash is not a prudent way to buy equity at a cheap price.

Nevertheless, I do not regret making this investment. This was money I had anyway kept aside for buying Nifty 500, so I haven’t strayed away from the plan too much.

The price I got was lower than the previous day’s price, but the index can very well continue to fall until a stable government comes into place. If the index continues to fall, my haste would have resulted in the loss of a better opportunity.

But the reality is that, whatever price we buy at, the price will eventually fall below it. Whatever price we sell at, the price will eventually rise above it. Lamenting our buy/sell decisions can never be productive. If I stay invested for a decade+, all these falls and rises will eventually prove too small to matter anyway.

2 Jun 2024


Every human is biased. When we come across someone that has biases similar to our own, we call them unbiased.