Avoid investing in actively managed large cap mutual funds.
Why?
83% of them were unable to beat the benchmark over a 5 year period.
You see – every actively managed fund is trying to beat the benchmark. For large cap funds the benchmark is NIFTY 100 index fund.
Now this index fund is just blindly investing in the top 100 companies of India in proportion of their size. Hence, there is no fund manager actively looking at the investments coz it’s all automated.
Due to this, the expense ratio is ten times lesser compared to actively managed large cap funds.
So if a large cap fund is struggling to beat the index, why the hell are you investing in it and paying more in fees?
Large cap active mutual funds lose their advantage as the country becomes more developed.
Midcap and small cap mutual funds still have that edge. The US stock market has already seen these changes happen.
How to invest?
👉🏻 Sort large cap index funds in increasing order of expense ratio and tracking error
👉🏻 Filter out funds less than 250 Crore
👉🏻 Give 80% weightage to expense ratio and 20% weightage to tracking error for ranking (lower the better)
👉🏻Pick the top ones in their respective category
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