What is Index Mutual Fund vs Active Mutual Fund and which one is better?

What is Index Mutual Fund vs Active Mutual Fund and which one is better?

If you invest in mutual funds and there are mutual fund investors around you, you would have often heard from them that active mutual funds are better and someone would say that index mutual funds are better.

If seen in the true sense, most people have incomplete information. Today here you will know exactly which is better, Active Mutual Fund or Index Mutual Fund.

Here you will know what is good and bad about active mutual funds and index mutual funds and what is better for you in India.


Index Mutual Funds V/s Active Mutual Funds (Index Mutual Funds V/s Active Mutual Funds)

Friends, a few years ago Warren Buffett had said that index funds are a good way to invest, after which he organized a rally of index funds.

When Warren Buffett talked about index funds, his first reason was that in countries like European and American, a large number of people invest in the stock market, that is why there are very few undervalued stocks there.

Instead of working so hard to find undervalued stocks, you can get good returns if you invest in indexes.

Just as food is available everywhere according to the environment there, similarly any fund is based on the economy of that country.

If we look at a developed country like America and invest in index funds, it will not be right.

Because a lot of calculations have to be done in business in a developed country, that is why the growth of the company is much less as compared to a country like India.

Finding multibagger stocks in India that can give us more than 50% returns annually is easier than in a country like the US, that is why you should not miss this opportunity to invest in stocks.

Now read a little carefully…

When you invest in index funds, you will invest in indices like Nifty 50, Nifty 100, Nifty 200 and their returns will be based on the returns of the companies included in them.

That is, by investing in any one index, you never get returns like multi cap because this index targets only one index.

But, if you invest in multicap funds under Active Funds, you get all types of allocations like small cap, mid cap and large cap, making it easier for your fund manager.

If you look at it, in index fund you get the return of only one index, whereas if you invest in multicap fund in active fund, then you get the average return of the entire market.

In index funds you cannot keep cash with yourself, even if the market valuation is high, you still have to invest in it and when it comes to active funds, the fund manager can keep 35% of the cash with himself and the market valuation. Comes after. Can invest.

In active funds your fund manager feels that mid caps are expensive now, so he invests in small caps, this way he can grow his fund in the right way.

But, in index funds you have to see for yourself which fund to invest in, there is no fund manager here.

To understand further, it is important for you to know how an index is created?

Here we understand from the example of Nifty 50, Nifty 50 includes the largest 50 companies of India.

For example, if the market cap of a company grows rapidly and it comes in the top 50 companies of India, then it gets included in Nifty 50 and a smaller company is left out of Nifty 50.

If a new company comes into the index, it will obviously be at a higher valuation, but an index fund investor will be forced to invest in it at a higher valuation.

But, most of the active funds in India never give more returns than the index funds, that is why people think that it is better to invest in index funds rather than hiring a fund manager and doing worldwide analysis, and it is true. is also!!!

It is not that all active funds give lower returns than index funds, there are some active funds which give 10% or more returns than the index.

To invest in an active fund you should look for a good fund manager and the historical returns of this fund.

So the question coming in your mind is whether index funds are not good for everyone???

So see, it is not so, index funds are suitable for people who are very safe investors and who are happy with returns of 10% and 15%.

If you want to be safe in index funds and are happy with annual returns of around 15%, you can invest in large cap funds.

But those who want to build wealth and get higher returns should invest in a good active fund by looking at the historical profits of multi cap funds so that you can get returns of 25% or more.

A good fund manager understands which sector has high valuation and whether it would be right to invest money in the market now, he also invests in the market little by little, such a fund manager can give you very good returns.

Now you must have completely known which one is better between Active Mutual Fund and Index Mutual Fund and how.

Index fund or active fund is based on the economy of any country, so avoid investing in it.

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