I would love to hear your thoughts about best way to invest in Indian Market based on given data. If there was something close to Vanguard in India I would peacefully invest in broad market indexes and call it quits but here is what is available in India :
* There are some ETFs but liquidity is extremely low.
* The main indexes available are Sensex (30 largest stocks) , Nifty ( 50 largest across sector), there are broad market indexes (up to 500 but no real equivalent of VTSMX that I'm aware of). There are no Mutual funds tracking wide market indexes (200 or 500 stocks) , mostly they track Nifty or Sensex.
* Index funds have expense ratio > 1% and actively Managed Mutual funds 1.5-2% .
Now based on this data here are options available for me :
* Invest in Actively managed Equity Funds and make peace with high expense ratio, volatility in returns and lots of closet indexing (Most of them have 40-50% exposure to top 30-100 stocks. That is the current option.
* Invest in Index funds with extremely high expense ratio (for what they do) and pure large cap exposure.
* Invest into Indian Market through funds available in USA (specially Vanguard) haven't researched much but I would definitely be exposing myself to currency risk.
* Start with 5-10% of Stock portion based on AAP and try to directly invest in stock market -
- Try to create a folio of 20-30 stocks.
- Pick from subset of top 100-200 stocks initially.
- Look at parameters like ROE > 15% , PE < 15 , PB < 7-8 , High Dividend yield , so overall more geared towards value.
- As soon as buy a stock , put a stop loss limit of say 25% so cut my losses if things go wrong.
Based on how well or not well things go, I increase the active stock portion over next 2-5 years.
I have read most of the basic books like William Bernstein, Bogleheads, Random Walk down the Wall-street, value Investing etc. , have 15 years exposure to market (thru Mutual Funds) , lost **** load of Money in 2001 :-) , have managed enough guts to buy on a 20-30-40% dip but still not much of Stock picking experience.
Please critique my plan as well as recommend books, resources, ideas to help. Currently Reading - Amazon.com: Damodaran on Valuation: Security Analysis for Investment and Corporate Finance (9780471751212): Aswath Damodaran: Books
Ultimately I'll be happy to get Market returns (12-15% in India over last 20-30 years based on whatever limited data we have) while saving 2% expense ratio, and hopefully limiting downside.