Please guide whether this strategy is correct or should I be looking at it from another perspective?
–Ayush Adwani
Passive investing or index-based investing allows investors to bet on indices rather than on fund managers to beat the indices through active management of the portfolio. The basic idea behind actively managing the portfolio is to earn more than the index. However, many investors believe that it’s impossible to beat indices consistently over a long period of time. That’s why it makes sense to invest in an index, say passive investment fans. The plus points are: you don’t have to worry about your fund manager to beat the index. You also save money as index funds charge less fees. All you have to do is to choose schemes with low tracking errors and fees. If this appeals to you, you can invest in index schemes. However, you should remember that active schemes, especially in the mid cap and small cap categories, may beat their benchmarks by a wide margin, especially in a bull market. Don’t try to change your strategy based on the market trends.
You should always choose your mutual funds based on your goals, investment horizons, and risk tolerance. If you are a conservative long-term investor, you should invest in large cap schemes. A moderate investor can choose flexi cap schemes. Aggressive investors can choose mid and small cap schemes. Pick schemes that are based on popular indices that match your investment profile.
