Index Mutual Funds: Is it wise to invest in them? Here is what experts said

Mutual fund investments are subject to market risk. So, why not invest in those mutual fund plans which are directly linked with the stock market? In fact, investors put their money passively into the stock market where an index growth would be their return. Because of this, Index Mutual Funds are gaining popularity among the millennials. However, the questions that need to be answered, 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?

Speaking on 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.

On how much difference one can expect between a fund managed the mutual fund and an Index Mutual Fund 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.