InvestorQ : If active funds are not even doing as well as the index, what does this mean for investors and what should they do?
Dilmini Mercia made post

If active funds are not even doing as well as the index, what does this mean for investors and what should they do?

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Dawn Cherian answered.
4 weeks ago
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Globally, this is a problem most of the active funds do worse than the benchmark indices. This has two implications. It is no coincidence that we have seen a big shift to hybrids and passive funds in last couple of years. For instance, 27.5% of MF AUM is hybrids and passive funds combined. Simpler index-driven approach and lower costs have made passive funds more attractive for this very reason. But, there are also larger implications of this story.

It may appear hackneyed but it is time to focus on asset allocation rather than trying too hard to beat the benchmark indices. If you manage asset allocation properly, you will earn more than inflation and index returns. Selection of funds is still a challenge. In India, top performers in various mutual fund categories have been generally consistent in their performance. The moral of the story is to go with long term return leaders in MFs.

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