Investors often face a dilemma on whether to invest in passive or active mutual fund schemes.
Exposure to large-cap companies through passive funds makes sense, said Deepali Sen, founder and chief executive officer at Srujan Financial Services LLP.
The ETF (exchange-traded fund) segment in passive funds has reached the size of Rs 6.5 lakh crore, she said. “Current share in overall MF AUM (assets under management) is around 18%, as of December 2023 data,” Sen said on The Mutual Fund Show.
According to Nikhil Kothari, director of Etica Wealth Pvt., investors should expand their portfolio. If investors solely invest in passive funds, it could underperform the index, he said.
However, he also highlighted the importance of passive funds vis-a-vis active funds. “The investor can prefer passive funds due to lower expense ratio,” Kothari said. “Both funds are important in a portfolio.”
The core part of a large-cap portfolio should be index funds and one or two active funds, Kothari said. The choice of active funds will be based on the fund manager and team, he said.
An index fund with low-capping error and low cash component is what investors should opt for, Sen advised.
