My layman thought process is as follows…
(please do poke holes or highlight any aspects i may have overlooked)
Assumptions
- In the market, higher returns always involve higher risk.
- Index-fund/ETF do NOT involve a cut to active fund-managers/teams.
- A Mutual-fund (MF) involves active fund-managers/teams to research/monitor.
- To pay-out a return X, a MF will need to earn more than X (to pay for the necessary active staff)
Combining 1 and 4,
compared to the risk one would assume to directly obtain a return of X.
to obtain the same return of X through a MF
one ends-up assuming a slightly larger risk.
Is investing through a MF actually higher risk though?
Additional Factors that can affect the above assumptions :
a. A MF can often possess additional information to help in better decision-making.
What an individual may not know or cannot find out, a MF with multiple full-time dedicated folks can find out in
time to take a better informed decision.
(the same decision is a higher risk for an individual, due to more unknowns.)
b. How often is the scenario described in a above true in the market,
Is it common enough that the MF has an actual advantage over an individual to make better decisions?
c. How does one evaluate/measure how much risk a MF is assuming,
to provide us certain amount of returns.
For example, If a MF is…
- taking 2x the amount of risk compared to the benchmark index
- to scrape 1.5x returns
- to keep 0.2x as their fees
- and pay-out 1.3x returns compared to the benchmark
In the above example, Is the additional 0.3x returns a MF provides above the benchmark, worth the 2x risk?
Q1. How does one go about finding the actual risk/reward numbers like these for a MF? 
Q2. To make slightly more than an index fund, how can an indiviual assume slightly more risk?
Could a portfolio that matches the index-fund, but is more frequently re-balanced
be an approach to assume marginally higher risk for equally marginally greater returns
compared to the benchmark index fund?