The National Stock Exchange of India recently issued an advertisement in “investors’ interest”, highlighting the benefits of investing in a Nifty exchange traded fund (ETF). The ad claims states that investment in Nifty ETFs has yielded a 16% compounded return over the past 10 years. Those had put their money Nifty ETF are riding a car and those who had put their money in bank FDs are still riding a scooter. The ad, targeted to educate investors, misleads by what statisticians call “cherry-picking”.

Two-wheeler or Four-wheeler or ??

NSE has taken a convenient 10-year period when Nifty has indeed delivered an annualised return of 16%. What about the other 10-year periods? We have analysed the 10-year returns of the Nifty from March 1991 to September 2013, with a six month frequency. Out of the 26 periods, the Nifty delivered a return of 16% or greater in just seven periods, i.e. just 27% of the time. Much of the returns came in the massive bull-run witnessed between 2003 to 2007. Had one invested in Sensex in 1992, investors would have even faced negative returns after 10 years. Nifty was not around in 1992 but the returns would have been similar. The 10-year period from March 1992 to March 2002 would have resulted in a loss of 1%. The investor would have had to sell his scooter and settle for bus rides. For the 10-year periods ending September 2001 to March 2005, investors would have had to settle for a return of less than 10%. The average of the 26 ten-year periods works out to 12%. NSE has chosen to present a misleading picture of returns but arbitrarily choosing a start date and an end date, all in the “investors’ interest”.

By the way, these misleading investors’ interest ads appear because of the firman by the market regulator to spend money in investor education. Instead of doing genuine investor education, fund companies and exchanges are finding ways to promote themselves, investors be damned.