Index Fund v/s Equity Fund

It seems as if today's markets are range bound. What could be a better bet at this moment, an index fund or equity fund?
-Sumit Pandey

If you can choose one or two good equity funds and keep track of its performance at least once a year, then you should invest in an equity fund. Otherwise, choose an index fund which tracks either the Sensex or Nifty. Your choice of an index fund should be based on the fund's ability to replicate the index and its expense. Exchange Traded Funds (ETFs) prove to be very efficient on both counts.

You said that the market is range bound. Based on this understanding, do not try to time the market with your equity fund investment. Firstly, the market is range bound for a brief period while it has been on a free fall since January. We do not know when it will steadily start going up again. But we believe that it will surely go up over the next few years. Based on this understanding, I urge you to choose a few good equity funds or an index fund and invest regularly for a period of no less than five to seven years.

This article was originally published on January 19, 2009.