Active Fund vs. Passive Fund investment debate is unending due to their valid pros and cons in current market situation.
1. Index funds suit more efficient markets, where active funds find it hard to beat their benchmarks.
2. Lower expenses and tracking error are prime attractions of index funds.
3. Due to their constituted manner, an automatic clean-up of portfolio also takes place in index funds, by owning outperformers and removing underperformers, hence investors needn't worry about laggard stocks.
4. Being a basket of securities, index funds reduce security-specific risk, as each stock or bond has a limited exposure and can cause only limited damage.
5. Without bothering about individual performance of active funds, investors only need to rebalance their portfolio periodically.
6. While some active funds will always outperform index funds, through alpha generation, probability of all of them being able to do so every year is less.
7. Index funds would gain more retail recognition when higher alpha generation by active funds would become harder.
8. However, having index funds in our portfolios, instead of "laggard" active funds, is a better long-term hedge.
1. Index funds suit more efficient markets, where active funds find it hard to beat their benchmarks.
2. Lower expenses and tracking error are prime attractions of index funds.
3. Due to their constituted manner, an automatic clean-up of portfolio also takes place in index funds, by owning outperformers and removing underperformers, hence investors needn't worry about laggard stocks.
4. Being a basket of securities, index funds reduce security-specific risk, as each stock or bond has a limited exposure and can cause only limited damage.
5. Without bothering about individual performance of active funds, investors only need to rebalance their portfolio periodically.
6. While some active funds will always outperform index funds, through alpha generation, probability of all of them being able to do so every year is less.
7. Index funds would gain more retail recognition when higher alpha generation by active funds would become harder.
8. However, having index funds in our portfolios, instead of "laggard" active funds, is a better long-term hedge.
9. Index funds are not supposed to outperform or underperform but just to replicate their index.
10. When evaluating index funds, look for funds that have been able to best replicate their index with the lowest tracking error.11. For those equity investors who want returns as per the benchmark index at all times, index funds are most suitable investments.
12. For those seeking risk-related alpha from investments, actively managed funds are more suitable.