Why investors must add index funds to their portfolios
Mutual fund advisors say investors can save 0.5% to 1.5% every year by investing in index funds. These savings can become significant over a long period.
“In a system where beating the benchmark is going to become more and more difficult for active schemes, especially for large cap schemes, it makes sense to just stay in the index. Active schemes have the bandwidth to beat the benchmark but with TRI and narrow-based rallies, it cannot be a consistent trend. So, taking extra risk on calls on schemes becomes unnecessary,” Santosh Joseph of Germinate Wealth Solutions LLP told the publication.
Advisors say if you have largely invested in actively-managed largecap schemes, then you should move some part of your investment to passively-managed index funds. However, mutual fund advisors believe that there is still a lot of scope in actively-managed small, mid and multi cap mutual fund categories to generate alpha or extra returns over their respective benchmarks.