Which is the best plot for New Investors Mutual fund or Equity Index Fund for long term investment?

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Nowadays Financial awareness is more among the new generation people thanks to the large scale digital advertisement on all social media platforms. Investment in mutual funds and the Equity market as a whole is showing an uptrend despite of the current economic situation.

I already have a post on what is mutual funds, you can have a look here. Lot of talk is going around related to whether the investors should choose Index funds for their long term investment goals or they can use the mutual funds instead, before understanding that we would try to look into what is an Index Fund?

Index Investing

The Idea of investment in Index fund especially comes from the developed countries where the indexes are saturated and the benefit out of actively managed fund is very less. One of the attractive feature of the index funds is Negligible Expense Ratio which means that the cost of managing the fund is very less because it tracks the underlying Index be it Sensex or Nifty.

Compared to an actively managed fund where the expense ratio's are close to 1% in the case of Direct funds, Index funds score higher in this aspect, but we have to consider other aspects as well for instance in the emerging economy like India where there are many startups and lot of Mid cap and small cap companies, chances are there if the fund is properly managed(actively) it can give a higher return than the benchmark or the index in the long run. 

But there is a catch choosing such a fund is not easy especially if there are lot of options available, also one has to closely monitor the performance of the mutual fund that one is holding and has to switch into other if its not performing well. So its better in that aspect to switch to index funds and be satisfied with the index returns and low expense ratio in the long run.

But for an active investor its possible to get better returns than the index if invested in a properly managed fund especially in the Indian scenario. So to conclude investors have to take a call based on the above points to choose an appropriate fund suiting his/her needs.


 

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