In case someone argues that this is a one-off period of underperformance, the long-term results also bear out the same trend. Over a 10-year period, 67.9 per cent large-cap funds, 63.4 per cent ELSS funds, 50 per cent midand small-cap funds, 98.2 per cent composite bond funds and 82.9 per cent government bond funds have failed to beat their benchmarks. In the light of such data, investors need to think of allocating a part of their portfolios to passive funds.
Besides a large proportion of active funds in most categories underperforming their benchmarks, investors face another major impediment when they try to select an active fund. If you consider successive blocks of 10 years, the set of funds that outperform in one block is not the same as the set that outperforms in the next block. In other words, the winners keep changing from one decade to another. This makes it impossible to select funds, based on past performance, that will outperform in the future.
Avoid fund manager risk In an active fund, the investor is exposed to fund manager risk. If the fund manager picks the wrong stocks or goes overweight on the underperforms and the wrong sectors, his fund investors in his funds suffer.
Fund manager risk manifests itself in one more way. Suppose that you select a fund based on its past performance because you believe its fund manager, who has performed in the past, will continue to do so in the future. However, it is quite possible that after you have entered the fund, the winning fund manager quits that fund house and moves to another. That creates a dilemma: do you stick to the same fund or move to the new fund that the fund manager is now managing? And what if you like the fund manager but are sceptical about investing with the new fund house that he has joined?
Denne historien er fra May 2023-utgaven av Investors India.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent ? Logg på
Denne historien er fra May 2023-utgaven av Investors India.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
5 Steps To Achieve Your Financial Goals
From a beach house, a Jaguar, to traveling the world – there are many things in life that we want to accomplish.
Microbiome: The Invisible Ecosystem Within us that Safeguards our Health
Imagine being able to heal yourself and build immunity against major diseases without relying on heavy medication. It sounds fantastic, right? Who wouldn’t want that? The key to achieving this lies in a fascinating area of research—our microbiome.
Gold ETFs: Attractive option for retail investors to take exposure to yellow metal
With the equity market experiencing volatility in August, investors are increasingly seeking to diversify their portfolios.
The Retail Revolution: How India's Stock Market Got a Makeover by the Common Man
In the annals of India’s financial history, the stock market has long been the playground of the big boys—mutual funds, insurance behemoths, and foreign portfolio investors (FPIs).
Strategies to adopt when the markets are at a high (for new and existing MF investors)
An investor must have a plan in place and, more importantly, stick to it regardless of shifting market conditions.
A Collaboration to keep Health FirstPNUT and IDA come together as One!
You reap what you sow! And if you sow health, you will reap a healthier tomorrow. Following the same lines, Personal Nutrition (PNUT) and Indian Dental Association (IDA) have come together as partners to promote complete health and nutrition for each individual! How things unfolded? Let’s explore.
Making a choice between equity and debt mutual funds for long-term goals
Mutual funds are quickly becoming a preferred investment choice for millennials.
ASK THE EXPERT
From last Financial Year, I have shifted to the new Tax Regime.
Flexi-cap Fund Vs Hybrid Fund
Investors in mutual funds can choose from equity, debt, or hybrid funds, each offering different risk and return profiles. Flexi-cap funds provide diversification across market capitalisations, while hybrid funds balance equity and debt for stable returns.
Neuroplasticity: You Can Teach An 'Old' Brain New Skill
A few decades ago, it was believed that the brain’s structure and functions were entirely dependent on genetics, age, and early childhood experiences.