10 noisy money arguments

Summary: Mutual funds may be mainstream today, but clarity hasn't kept pace with access. In our 23rd anniversary issue, we cut through the noise—debunking the most popular investor debates that do more harm than good. Twenty-three years ago, investing was a niche sport. The landscape had few funds, fewer investors, no apps and definitely no SIP calculators. If you wanted to check your portfolio at that time, you had to wait weeks for a statement to arrive. Cut to today, everyone’s more savvy. Phones buzz with daily portfolio updates. Apps gamify SIPs. Finfluencers sell tips in reels shorter than it takes to make your coffee. All this has pushed mutual funds into the same small-talk league as cricket and politics. That’s the good news. The bad news? We might have swapped ignorance for obsession. Instead of asking why to invest, people now argue endlessly about where and when. Which SIP date is best? Is passive smarter than active? Which fund house should I pick? How can I time the market? These aren’t discussions; they’re distractions dressed up as debates. And it’s not just harmless chatter. While crores of investors have joined the markets, many still don’t invest steadily through SIPs or stay long enough for compounding to work its magic. Even among the disciplined few, too many end up second-guessing their choices, fiddling with their portfolios or chasing the mythical multibagger. Easy access has made us restless. The urge to optimise every percentage point is the new disease. That’s why, in this special anniversary issue, we will cut through the noise. We’ve picked 10 of the most popular arguments that clog WhatsApp groups and shown why they aren’t worth your energy. Because long-time readers of Mutual Fund Insight know that we’re not here to win arguments, we’re here to help you win at investing. Real wealth doesn’t come from debating SIP dates or hunting for entry points; it comes from boring, disciplined habits of staying invested, rebalancing perhaps once or twice a year and letting time and compounding do the heavy lifting. So, as we mark 23 years of guiding investors, here’s our offering over the next few pages: dismantling of myths, deflating of debates and reminding you of the only things that matter in investing. 1. Hunt for the ‘best’ funds: The chase for perfection often costs more than it earns “Which is the best fund for your SIP?” No question echoes louder in the investing world than this. Type it into Google and you’ll drown in results; it’s among the most-searched mutual fund queries out there. The logic is simple: if SIPs are the favourite way to invest, there must surely be a single, unbeatable fund that tops the list. But reality is often disappointing. As per AMFI (Association of Mutual Funds in India), nearly 40 per cent of investors exit their mutual funds within two years. Two years! That’s before any SIP can even get going. Which means the search for the “best” SIP fund often masks the real problem: investors don’t stay invested long enough to let the system work. Why chasing ‘best’ doesn’t work On paper, the hunt makes sense. Who doesn’t want the best? In life, that thinking gets us better jobs, tastier food, nicer phones. But in investing, the “best” is a mirage. That’s true especially in markets, since they are cyclical and so are fund leaders. A five-star fund today can look ordinary a few years later. The chart titled ‘Stars don’t stay forever’ shows how small the probability is that a five-star fund remains five-star over a five-year window compared with the probability of a fund staying above three stars. Ratings drift is normal, which makes serial fund switching a costly habit. It’s like changing lanes in traffic because the other one looks faster. The moment you switch, yours starts moving again, and you’re stuck all over. That is why the search for the best feels endless. It becomes an exercise in over-optimising. You expend energy, switch schemes and usually arrive late to last year’s winners. Meanwhile, the calendar keeps turning and the SIP that could have quietly compounded is interrupted. The behavioural trap What really drives this obsession is psychology. Three common behavioural biases push investors into bad habits: Recency bias: We assume yesterday’s star performer will keep shining tomorrow, even though markets are cyclical. Loss aversion: Investors can’t stomach short-term red ink in their portfolios, so they abandon perfectly good funds at the first sign of trouble. Paralysis by analysis: With too many choices, investors keep searching for the “perfect” option, instead of committing to a good one and letting time do the heavy lifting. These quirks of human nature explain why so many investors miss out on SIP power. It isn’t the fund that fails, it’s investor’s behaviour that does. A tale of two investors Meet Rahul and Avni. Both started investing at age 40 in 2005. Rahul kept scouting for the ‘best’ fund. At the start of every year, he switched the previous year’s ‘best performing fund’. Avni chose a ‘consistently’ good equity fund and did one thing that’s crucial. She stuck with the same fund because it performed more often than not. The difference is stark when you add this one simple habit. Same market. Same starting point. Very different outcome. Avni beat Rahul 64 per cent of the time, and when she did, her portfolio was ahead by an average of 25 per cent. And even when she trailed, the gap was just 9 per cent on average. Why? Because Avni compounded discipline, while Rahul compounded doubt. The chart titled ‘The irony of chasing the best’ shows how their portfolios stacked up across these years. For this analysis, we compared the average return of all equity funds rated three-star and above (owned by Avni) with a portfolio built by buying the previous year’s best-performing equity fund and rebalancing annually (owned by Rahul). Both are based on a Rs 10,000 monthly SIP from January 1, 2005, to August 1, 2025. The moral of the story is that if you must optimise something, optimise your behaviour. Three things really matter in SIP investing: Category, not brand: Let your risk appetite decide between large-cap for stability, flexi-cap for balance or mid- and small-cap for higher growth potential. The logo on the fund is secondary. Discipline, not drama: A decent, consistent three-plus star fund held patiently often beats the hop from one temporary champion to another. The patient approach wins on corpus value because compounding needs continuity. Step-ups, not switches: The biggest wealth multiplier isn’t picking “the best”. It’s increasing your SIP every year. Step-up SIPs quietly outmuscle endless fund-hopping. Ending the ‘best fund’ debate There are only good funds and better habits. Ratings change, leaders rotate. The investor who keeps a steady SIP and steps it up over time wins over the one always ‘hunting’. Wealth isn’t built by finding a unicorn fund, but by showing up month after month and letting compounding do its work. So stop asking, “What is the best SIP fund?” The sharper question is: “Am I willing to stay the course?” 2. Active vs Passive face-off: Skill costs more. But does it pay off in the long run? Every now and then, investors get caught in a barroom brawl of the investing world: active versus passive funds. The debate rages on, like cricket fans arguing on Sachin vs Virat, but to be clear upfront, the real determinant of wealth isn’t the style of fund, it’s a bit more nuanced than you think! Why does this debate keep popping up The noise isn’t without reason. Active funds have been losing their swagger. Once upon a time, a good fund manager could regularly outfox the index. But it is not that easy anymore. In large-caps, the average outperformance, the extra return over the benchmark, has slipped from about 3 per cent per year in 2015 to just over 2 per cent today. Mid-caps have had a steeper fall, from 6 per cent to under 2 per cent. Even small-caps, long considered the happy hunting ground of fund managers, have seen their outperformance shrink from 13 per cent to about 4 per cent. One reason is the contribution of a high expense ratio charged by active funds, which is generally 0.5 to 1 percentage point higher than that of passives, and the debate starts to feel more like a math problem than a matter of faith. After all, compounding doesn’t just apply to returns; it applies to costs, too. India’s special case But before we write the obituary of active management, let’s remember: India is not the US. Our markets still brim with inefficiencies. Smaller companies have little research coverage, which means hidden gems are waiting to be discovered. That’s why active managers still find opportunities, particularly in mid- and small-cap segments. Large-caps, on the other hand, are steadily becoming a tough playground. With retail investors, FIIs (foreign investors) and DIIs (like insurance companies and banks) all circling the same stocks, efficiency is rising. The edge for active managers is narrowing fast. The hidden strength of active funds Outperformance is just one part of the story, though. The real surprise lies in active funds’ ability to weather market storms. Take the market crash of 2008, when the large-cap index fell nearly 64 per cent. About 80 per cent of active large-cap funds fell less than the index, cushioning investors by a respectable 7.3 percentage points. Fast-forward to the Covid crash of early 2020. Again, 89 per cent of large-cap funds managed to limit losses compared to the index. The story repeats in mid- and small-caps. In the 2020 meltdown, majority of mid caps and all active small caps managed to fall less than the small-cap index, some even by a double-digit margin. In other words, when markets are in free fall, an experienced fund manager often works like a good shock absorber. What should you do? Here’s the thing: neither camp has a monopoly on wisdom. Both active and passive funds demand discipline. If you’re the type of investor who gets paralysed choosing from a buffet of 500+ funds, passive is your friend. You can expect market returns at a rock-bottom cost. If, however, you believe in skilled managers and are willing to pay that extra bit for the shot at outperformance, and some downside protection, active funds still deserve a place in your portfolio. But let’s not lose sight of the bigger picture. Style is secondary. As the data keeps telling us, wealth is built not by endlessly debating active versus passive, but by showing up, staying invested and letting compounding do its quiet, relentless work. 3. Large vs Small funds: When does large stop being alluring? The past five years have been nothing short of a joyride for Indian equities. Markets have soared, and with them, mutual fund AUMs have swollen, thanks to both surging stock prices and a deluge of investor money. So much so that India now has its first active equity fund strutting past the Rs 1 lakh crore milestone, with a few others hot on its heels. But as funds become larger in size, the age-old question returns: does size hurt performance? Before diving in, let’s first take stock of the current AUM landscape. AUM story: Now vs five years back Back in August 2020, active equity funds together managed Rs 7.6 lakh crore. Fast forward five years, and that figure has shot up to a whopping Rs 33.2 lakh crore. Zoom in

This article was originally published on October 28, 2025.