Index Mutual Funds: Is it wise to invest in direct market-linked plans?

An investor can invest in Index Mutual Funds in the large-cap segment but she or he should stick to traditional mutual funds while investing in small-cap or mid-cap segment, say experts.

In the last three-four years, Index Mutual Funds in the large-cap segment have given better returns than traditional mutual fund plans, say investment experts. Picture: Pixabay

Mutual fund investment as we know are subject to market risk but some of the mutual fund investors are of the opinion that it's unwise to invest in a fund that is managed by the asset managers. they should be investing in the direct stock market-linked funds, which is free from any fund manager or asset manager. In fact, they are in the mood to invest passively into the stock market where an index growth would be their return. Due to this new trend among the investors, Index Mutual Funds are becoming popular among Indian millennials as well. But, the question that needs to be answered is: is it wise to indulge in passive investment in the share market? Will Index Mutual Funds give better returns if compared to traditional mutual funds?

Commenting upon the Index Mutual Funds Kartik Jhaveri, Director — Wealth Management at Transcend Consulting (India) said, "Index Mutual Fund is a bunch of stocks from the same index being offered by the Mutual fund houses. it doesn't have any fund manager means the return one can expect in this type of mutual fund is directly proportional to the index performance at the stock market." However, he said that the fund manager is hired by the mutual fund houses to outperform the market. So, when the market is not moving fast, fund managers become important because it has been found that an index is not moving but some stocks would be moving. So, in such circumstances, Index Mutual Funds give lesser return than the customary mutual funds.

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On how much difference one can expect between a fund managed the mutual fund and an Index Mutual Fund Kartik Jhaveri said, "In long-term perspective say more than 10 years, the difference could be to the tune of 3 per cent to 10 per cent, depending upon the acumen and experience of the fund manager."

However, Jitendra Solanki, a SEBI registered investment expert said, "Index Mutual Funds have been coined to get better returns when even fund managers are unable to give handsome returns. For example, in last three to four years, large-cap Index Mutual Funds have given better returns than a fund managed mutual funds. So, it's better to diversify one's investment rather sticking to one type of investment.

"My suggestion to the mutual fund investors is to pick Index Mutual Funds when they are investing in large-cap, but stick to fund managed customary mutual funds in mid-cap and small-cap segment," said Jitendra Solanki.

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