InvestorQ : Should I prefer passive index funds over active funds for the long run goals?
Chandralekha Desai made post

Should I prefer passive index funds over active funds for the long run goals?

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Mitali Bhutta answered.
2 years ago
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Broadly, your thinking is right that markets are becoming more of a beta market and less of an alpha market. Opportunities to outperform the index have reduced substantially. Due to asset convergence, most of the market risks and the opportunities are reflected adequately by the index itself. Fund managers have the dilemma of identifying the handful of multi-baggers. The bigger dilemma will be for investors. When 65% of the fund managers failed to outperform indices in the last 10 years, what is the probability that the investor can select a fund manager who can actually outperform? Just about 35% and that is why index funds are relevant.

You don’t need to make an all out shift to index funds but start looking beyond pure active funds and also make some passive allocation. It is not without reason that index funds are such a big attraction in Western countries. Firstly, it is hard to beat the index on a consistent basis. But it is a lot harder for investors to identify such funds that can beat the indices on a consistent basis. The trend towards index investing is coming to India and the numbers are already reflecting the same.

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