IDEAL STOCK|In the current scenario, investing in passive funds is the best bet.
These days, investors in equity markets are having a rollercoaster ride. Nifty have dropped by over 20 percent from highs after news on loan default by Infrastructure Leasing & Financial Services (IL&FS), coupled with rising crude oil prices and depreciating rupee against dollar. As per the current scenario of the bearish market, passive funds are snatching the limelight from active funds.
Active funds are those funds which are maintained to outperform the market, to give their investors returns better than the market, but these funds do not promise or guarantee the continued and regular out-performance. On other hand, passive funds are those funds which eventually invest in the index stocks in the same ratio as the stocks have weighed in the index, which means that these stocks are maintained to give the market return and no better or below than that.
What is passive funds and who should invest:-
Passive funds could either be Index Funds or Exchange Traded Funds (ETFs). "This funds mirror a particular index future tips, thus it becomes an easy choice for novice investors who do not have the understanding or wherewithal to pick actively managed funds," said Kaustubh Belapurkar, Director – Manager Research, Morningstar.
Increasing inflows to passive funds:-
In developed countries like the US, in India too most active managers in active funds fail to beat the benchmark and thus over the last few years passive funds have been witnessing increased flows as compared to actively managed funds. Belapurkar said, “Once the assets under management (AUM) of the Indian fund industry grow multifold, the alpha will start shrinking and thus we will see a migration towards funds. But that is still some time away.”
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