Is this a good move considering the fact that most active funds fail to beat their benchmark indices?
- Most can’t beat.
- So if we try to pick say 5 good funds, say 1 or 2 might beat and others don’t. Aggregate we can hope that we might beat but probably wont. Even if we do, now out performance will be reduced by higher expenses so aggregate perf will drop further.
- Randomly some fund can beat market and then stop subsequently. Most people invest in funds once a fund is doing well. That is the time when expenses will rise and performance will likely drop as MR happens in performance and now that will increase further due to costs. Even long established guys like ICICI head Naren and old HDFC guy Prashant Jain had long periods of under performance when value investing was giving nothing for a prolonged period.
They already have enough incentive to beat the market due to competition and yet they cant. And now whatever fund can beat by that small % difference, some of that minor out performance will be reduced by charging higher. This will probably make the case for index funds even stronger.
This can only work if we knew before hand which fund will beat the market over long period (or atleast if most funds did that) and then perhaps we can give them a bit more in expense. Or they should reduce expense for under performance too to compensate.
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Is the mutual fund industry or the AMCs looking at steep losses this year?
And trying to add a new revenue stream to stay afloat ?
Or are we going the hedge fund way like in US??