Is it worth investing in Nifty 50 Index fund?

5 year returns of majority of active large cap funds are higher than the returns of Nifty 50 Index fund. Then why still people are preferring Index funds?

Even with high expense ratio of active large cap funds, we are beating the Nifty 50 Index, then why should we worried about higher expensive ratio of active mutual funds

5 year active large cap returns
Axis Bluechip Fund Direct - 20.70
Canara Robeco Bluechip Equity Fund Direct - 19.64
Kotak Bluechip Fund Direct - 17.90
Edelweiss Large Cap Fund Direct - 17.27
UTI Mastershare Direct - 17.27
BNP Paribas Large Cap Fund Direct - 17.17

5 year passive large cap returns
UTI Nifty Index Fund Direct - 17.07
HDFC Index Fund Nifty 50 Plan - 16.98
Tata Index Nifty Direct - 16.9
Nippon India Index Fund Nifty Plan Direct - 16.9

Are the underlying securities of the large-cap funds mentioned above are an exact replica of Index funds?

Apart from the obvious expense ratio which is higher in the case of active funds, other reasons could be.

  1. For newbies, who were mainly into Fixed Deposits with banks, investing in Index funds would be a great way to get exposure to equity.
  2. Nifty 50, represents the top 50 corporates of India, I need not worry about the Fund manager, his pedigree, his skill set, his CV, what happens if he resigns and goes, whatnot. Years back, journals used to write about alpha managers, super managers, etc There were full-page articles written about these guys in money magazine. During those days, I guess, Index Funds and passive investing were not popular.
  3. I am sure there are many investors like me, who invest in Index funds who are for the long term and hence the expense ratio, though the difference is not too much, might count if you take a 10 to 15-year perspective.
  4. There could also be many investors who prefer moderate returns as against higher returns that active fund managers could provide.
  5. The best I like in an Index fund is the semi-annual review where the laggards are thrown out and new corporates brought in. Hence, at any point of time, Nifty 50 would represent the best of the lot.

Again in your analysis, only Axix and Canara seem to have generated a marginally higher return than the passive category.

Disclaimer: I truly believe in Index ETF and hence my views is biased towards index investing.

R.I.P. Jack Bogle.

What exactly is your definition of “majority” here? The standard definition is: more than half. Are you claiming that more than half of active large cap funds have higher 5-year returns than Nifty 50 Index funds? Could you link to some source which supports this assertion?

In Every period there will be few (not majority, only few) active funds which will beat index and index funds. But they are not same every year.
If this year it is xyz funds, next year it would be abc.

So yes chances are your fund might beat index in one year, but next 3-4 years it might underperform.

Index funds are useful to get rid of this uncertainty at low cost.

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After reclassification of MF last year it doesn’t make sense to go for large cap

It will be tough for fund manager to beat index fund in longer horizon plus you will be paying other charges. Going for Index fund is more smart option with less expense ratio.

Mutual Funds were reclassified in 2018. Now the active large cap funds have to invest in top 100 stocks as 80% of the portfolio. So looking at past returns makes no sense. That’s why active large cap funds are not recommended.

Just because it has happened in the past doesn’t mean it will happen in the future.

This is interesting question.

https://www.advisorkhoj.com/mutual-funds-research/top-performing-lumpsum-funds?category=Equity:%20Large%20Cap&period=5&amount=10000&scheme_plan_type=Direct
shows 27 large cap mutual funds, out of that 8-10 have delivered more than passive index fund for investment done 5 years ago

Question is how will you choose, which active mutual fund will beat passive index (fund) in next 5 years.?

Most of active funds removed most of PSUs. That’s the reason for better performance.