Should you invest in passive funds now?

Jai: Great to see you, Veeru! Where have you been all week? Veeru: I was busy taking stock of my portfolio. My portfolio value has been falling for the last couple of months in my NSDL CAS statement, so I got worried and was wondering what to do. Jai: Taking stock is fine, but don't start changing around your funds in a hurry. Veeru: Actually, I am quite tempted to sell some of my active funds and buy index funds. See, in the five years until 2017, all the large- and mid-cap funds I had were bolting like Usain Bolt and leaving Nifty 50 far behind. But everything changed in 2018. Currently, I see the Nifty 50 is easily beating my active funds. My cousins in the US are advising me that I should shift all my money to exchange-traded funds (ETFs), as they did. After all, India catches up a few years later with whatever happens in the US today. Jai: Yes, active funds have struggled in 2018. I was looking at the Value Research data. In the last one year, 93 per cent of the open-end large-cap funds underperformed the Nifty 50 Total Return Index. On three-year performance data, too, 80 per cent of the funds are lagging behind the index. Mid-cap funds are in the same situation. About 40 per cent of the active mid-cap funds didn't match the Nifty Midcap 100 Total Return Index for one year and 80 per cent didn't on a three-year basis. But I would say it is too early to conclude anything, Veeru. Veeru: You are contradicting yourself. You have yourself said that active fund managers are not able to beat the index. Then why stick to them? Jai: Before making any wholesale change in your portfolio, it is always better to wait and see if the trend you've noticed is a temporary p

This article was originally published on August 20, 2018.