The TOI has an article today where it says,
Out of the 300-odd diversified equity funds, only one has managed to beat key indices such as sensex and nifty. But four index-based funds have made it to the top 10 list, giving double-digit returns for the month.
In the past, I have been blinded by such reports and come to the conclusion that it’s better to buy index funds and ETFs rather than the actively managed mutual funds. Here are few data and pointers that say that it doesn’t really work like that in India.
- The article has taken a view of a month’s performance and insinuates that index funds are good. It doesn’t talk about, say, three year performance.
- The top index fund/etf on a 3 year return basis returned 10.66% as per this data
- The top equity diversified mutual fund on a similar 3 yr return basis gave a 21.83%. (Source)
- There are 74 mutual funds out of 248 (equity diversified funds) that have exceeded 10.66% as in point 2 above.
- There is wide variation in the index funds returns despite them tracking the index.
- The cost too is not as low as in the US.
- The US experience is different.
- In the US, John Bogle has preached the virtues of low-cost indexing since the 70s and his Vanguard Group Inc. finally unseated Fidelity as the largest US mutual-fund company by assets. They offer huge cost advantages and their market are supposed to be more market efficient.
So, would you invest in a actively managed mutual fund or an index? Or choose “Ignorance is bliss” 
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