Is there a place for both active and passive index funds in your MF portfolio?
Read more: Investors should take ownership of their investments Another thing to note is that active large-cap funds beat the index occasionally but not by much. However, good smids tend to beat their benchmarks quite comprehensively.
So even though the expenses of passive funds are low, the quantum of outperformance (or alpha over index) by active smids in good years more than compensates for the higher expenses. Of course, there is no guarantee of active funds beating the index.
But for some who identify as (at least) moderately aggressive investors, the potential for outperformance is a risk worth taking. Isn’t it? So, while I am all in favor for investing in pure passive funds for large-caps, I also advocate for active funds in the smids space.
So, unless you are a very conservative investor, there is space for both fund types to coexist in your portfolio. But whatever you do, don’t try to constantly shuttle between pure active to pure passive and vice-versa based on the last 1-2 years’ return.
Either pick a side and stick with it for long, or as we deliberated above, keep funds from both sides in your diversified portfolio to cater to different market segments. Dev Ashish is a registered investment adviser and founder of Stable Investor.
. Read more on livemint.com
