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Should I invest in index funds instead of a large-cap fund?

As most of the actively managed large-cap funds struggle to beat the index, passive funds are definitely making their way in the industry, says Dhirendra Kumar

Is it advisable to move active large-cap funds to passive funds, given the expense ratios and active large-cap funds don't have much scope of generating alpha in the future?
- Kishor Kumar

I think so. Most large-cap funds have been struggling to beat the index. Hence, there is a case for passive funds. Active funds have an expense of 1-1.5 per cent, whereas the cheapest ETF is available at 10 basis points. Thus, even if any actively managed fund is able to generate 1-2 per cent more returns than the benchmark, it will be barely matching the index funds owing to their higher expenses.

Also, several platforms, such as Zerodha, Groww, etc., are offering zero brokerage access to equity markets. Hence, buying ETFs is not a troublesome issue anymore. Finding an actively managed fund that would beat the benchmark continuously is a difficult thing to do. With investing in ETFs or index funds, you are guaranteed of at least the benchmark returns. So, there may be a case for moving your investments from actively managed funds to passive funds.

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