iStockI want to invest in an index fund for 5-7 years via SIP. Which index fund shall I choose?
My current SIPs are in:
Rs 5,000 In Mirae Asset Emerging Bluechip Fund
Rs 5,000 ICICI Prudential Bluechip Fund
Though I have a monthly SIP in ICICI Prudential Bluechip Fund since February 2017, it is not doing that good. I have invested this money with a long-term horizon of 5-7 years. I am not in urgent need of money. Shall I continue/reduce/stop my SIP in ICICI Prudential Bluechip Fund?
-Megha Jain
ICICI Prudential Bluechip Fund is one of the consistent performers in the large cap category. The scheme has given around 32% returns in 2017, -0.80% in 2018, and around 9% in 2019. The last two years have been bad for equity schemes. So, the scheme's performance is in line with the larger trend in the mutual fund space. If you do not need the money urgently, you may continue with the scheme.
Many mutual fund investors, especially large cap mutual fund investors, have been thinking about switching to index funds lately. This is mainly because of the talk that actively-managed mutual funds, especially large cap funds, would find it difficult to beat their respective indices, index and ETF funds after the recategorization of mutual funds by Sebi. The exercise revised the investment mandate of mutual fund schemes. The stricter investment mandate took away the freedom enjoyed by fund managers to invest in hot market capitalisations and sectors to shore up returns. Large cap funds have struggled to beat their index counterparts in both 2018 and 2019.
However, you should keep a few things in mind before taking a final call on it. The market rally has been driven by a few heavyweight index stocks in the last two years. Schemes that held those stocks did well. Scheme that did not own those stocks fared badly. However, market pundits believe that the trend may change when there is a broad-based rally in the market. If that happens, actively managed schemes may outdo index schemes. However, there is an unanimity that large cap schemes are unlikely beat their index counterparts by a wide margin.
If you decide to switch to an index fund, you should keep in mind that it does not guarantee any returns. When you are betting on an index fund, you are actually betting on an index. When you are betting on an active fund, you are also believing in the ability of your fund manager to choose stocks smartly and beat the index. This is the only difference. Other than this, index funds have very low expense ratio. So, you save some money and that can enhance your returns over a long period.
You should always choose mutual funds based on your goal, horizon, and risk profile. This doesn't change even when you are investing index funds. If you have low or conservative risk appetite, you should bet on a large cap index fund that invest in Nifty or Sensex. If you have a large risk appetite, you may bet on riskier index funds.
My current SIPs are in:
Rs 5,000 In Mirae Asset Emerging Bluechip Fund
Rs 5,000 ICICI Prudential Bluechip Fund
Though I have a monthly SIP in ICICI Prudential Bluechip Fund since February 2017, it is not doing that good. I have invested this money with a long-term horizon of 5-7 years. I am not in urgent need of money. Shall I continue/reduce/stop my SIP in ICICI Prudential Bluechip Fund?
-Megha Jain
ICICI Prudential Bluechip Fund is one of the consistent performers in the large cap category. The scheme has given around 32% returns in 2017, -0.80% in 2018, and around 9% in 2019. The last two years have been bad for equity schemes. So, the scheme's performance is in line with the larger trend in the mutual fund space. If you do not need the money urgently, you may continue with the scheme.
Many mutual fund investors, especially large cap mutual fund investors, have been thinking about switching to index funds lately. This is mainly because of the talk that actively-managed mutual funds, especially large cap funds, would find it difficult to beat their respective indices, index and ETF funds after the recategorization of mutual funds by Sebi. The exercise revised the investment mandate of mutual fund schemes. The stricter investment mandate took away the freedom enjoyed by fund managers to invest in hot market capitalisations and sectors to shore up returns. Large cap funds have struggled to beat their index counterparts in both 2018 and 2019.
However, you should keep a few things in mind before taking a final call on it. The market rally has been driven by a few heavyweight index stocks in the last two years. Schemes that held those stocks did well. Scheme that did not own those stocks fared badly. However, market pundits believe that the trend may change when there is a broad-based rally in the market. If that happens, actively managed schemes may outdo index schemes. However, there is an unanimity that large cap schemes are unlikely beat their index counterparts by a wide margin.
If you decide to switch to an index fund, you should keep in mind that it does not guarantee any returns. When you are betting on an index fund, you are actually betting on an index. When you are betting on an active fund, you are also believing in the ability of your fund manager to choose stocks smartly and beat the index. This is the only difference. Other than this, index funds have very low expense ratio. So, you save some money and that can enhance your returns over a long period.
You should always choose mutual funds based on your goal, horizon, and risk profile. This doesn't change even when you are investing index funds. If you have low or conservative risk appetite, you should bet on a large cap index fund that invest in Nifty or Sensex. If you have a large risk appetite, you may bet on riskier index funds.
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