You are here: Home » PF » News » Investments
Business Standard

Weigh your options before going passive on mid- and small-cap equity funds

The majority of active funds still outperform their benchmarks and passive funds don't have a long track record in these two segments

equity fund


Easy money lifting stocks globally

The new fund offer (NFO) of Nippon India Nifty Smallcap 250 Index Fund is underway at present. With the launch of this fund, six passive products (index funds and exchange traded funds or ETFs) are now available in the mid- and small-cap segments. After years of underperformance by the majority of large-cap active funds against their benchmarks, many financial advisors now suggest that investors should have either 100 per cent, or at least 50 per cent, exposure to in this segment. But such a consensus does not prevail when it comes to in the mid- and small-cap segments, one reason being that not enough passive products were available here until recently. Let us examine the arguments for and against opting for in the mid- and the small-cap categories.

Get market-equivalent returns

A key reason for investing in passive funds in any segment is that the investor is assured of market-equivalent return. The latest S&P Indices Versus Active Funds (SPIVA) scorecard that is available is for year-end 2019 and it shows that only 40.91 per cent of were outperformed by their index (compared to 82.9 per cent of large-cap funds) over the five-year period. Proponents of passive funds, however, argue that even though data shows that the majority of active funds in the mid- and the small-cap categories managed to outperform the benchmark, there is no guarantee that the active fund you have chosen will necessarily beat the index (your fund could be part of the 41 per cent that didn’t).

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, October 23 2020. 19:45 IST