FMC in Index Mutual Funds

Did you know? There is a difference of between 0.5% to 1% on the Fund Management charges between an Index Mutual Fund and a diversified Mutual Fund. The definition of a diversified mutual fund we are using here will encompass diversified equity funds, sectoral funds, ELSS, market capitalisation oriented funds, etc. For long term investors there is a clear case for shifting a significant portion of investments into Index funds. In economies with a long history of equity markets, it has often been observed that Mutual Funds which digress from an index find it very difficult in the long run to catch up, let alone beat index performance. In a country such as India equity is more of a recent investment avenue spanning only a few decades; and that too the inclusion of equity as a part of a average portfolio has happened only recently. Still a major part of savings in India happen in Fixed Income securities and only a very small percentage actually finds its way into equities. As the markets move forward with underlying intrinsic and economic growth, a new interest in equities from a fresh set of investors who were hitherto uninclined or financially incapable is pushing the markets in completely untested territories. At this juncture it would be good if there was a way to educate these new investors to follow a principle of index investing... because at the end of the day if the index (which essentially means a compilation of some of the best corporates in India, the list being periodically revised to filter out under-performers) does not perform, then it is highly unlikely that there would be any other investment idea within the equities space that would have performed over a similar duration.