2 minutes recipe for new investors. Finally Warren Buffet lessons worked for Indians.

The Great warren Buffet always supports the index funds. He said “I have [a few] very short lessons for perhaps the new investors”. Buffett warned against investing in individual stocks, as “I do not think the average person can pick stocks. Many companies were in blue-chip earlier, now reached their blue-chip status. So picking the right stock is complex for new investors. Sathyam computers, DLF, Idea cellular, Yes bank, bank of Baroda, Unitech were blue-chip companies in 2000 and no more in blue-chip list in 2022. So picking the right stocks is crucial for new investors or for the investors who want to create wealth in long term. 2 min recipe for new investors.

Index funds are appropriate for 90% of investors.

Instead of stock picking, Buffett suggested investing in a low-cost index fund. “I recommend the index fund,” Buffett said, which holds 500 of the largest companies in the U.S. In Indian context, invest in Nifty, Sensex index funds which holds top 50, top 100 companies in the stock market.

Warren Buffett suggests everyday investors stick to low-cost index funds.

Buffett is a master of value investing wherein patience, discipline, and risk aversion are the essential ingredients for success. But he acknowledges that individual stock picking is not for everybody. In fact, most average, long-term investors would benefit from a much simpler strategy, he says: investing in low-cost index funds.

Buffett says index funds are ‘the most sensible equity investment’ for most people.

Indian market always recommends and endorse the active funds. It believed that fund managers would beat the index returns. The index fund was at first ridiculed, then tolerated, then unwillingly accepted, then reluctantly supported, and finally copied by all. That’s because the debate has long since been resolved by reality: Active investment managers consistently fail to match or exceed the benchmark indices of their funds. Passively managed index funds, by definition, always hit their benchmarks. The mint top rated large cap funds are index funds, not actively managed funds.

Active Management: Luck or Skill?
You might point out that some funds indeed beat their indexes. Evidence from a Barclays study shows that the chance for continued outperformance is slim for an active manager to continue beating the index. The debate has long since been resolved by reality: Active investment managers consistently fail to match or exceed the benchmark indices of their funds.

Index Funds vs. Active Funds: Cost
Actively managed funds start at a disadvantage when compared to index funds. The average ongoing management expense of an actively managed fund costs 1% more than its passively managed cousin. The expense issue is one reason why actively managed funds underperform their index. The expense ratio difference 1% would make huge different in long term. In case you are investing 5000 in SIP, it would differ by 50 lakhs in long term.

Blue-chip company list : Fixed or Volatile
Blue chip companies may not be in blue-chip list for long. Indian market has seen many examples such as Yes bank, Sterlite, Cairn India, BHEL, Lupin and many more. Selecting the right company to invest is crucial for wealth creation. Index funds give that with simple option.

1000’s of mutual funds in market : Time to select the fund to invest

There are 30 index funds in the market out of 1000’s of mutual funds in the market. Selecting the index funds rules out all the unnecessary options and provide simple list to select the funds for investing. All the index funds are mostly same and we can invest in any of low cost index funds for better return.