Guaranteed Average Return Vs Low Probability Out Performance

We recently conducted a study to examine the value that the mutual fund industry had added in aggregate over a period of over 15 years and whether they had been able to beat the Nifty 50 price and TRI (Total Returns Index i.e. including dividends). To no one’s surprise they didn’t.

Let that sink in. The Mutual Fund Industry as a whole has not beaten the Index.

So lets look at this way :

(A) Probability that you will chose a winning fund that will beat the index over 15 yrs is 50%

(B) Probability that fund will survive over 15 yrs – about 60%

Probability of A and B is about 30% – pretty low. So then why not put atleast 70% of your savings for a long term goal like retirement or buying a house after 20 yrs in Index Funds which are low cost and will give you the average market return for sure.

Nifty 50 Total Returns Index (including dividends reinvested) have beaten inflation and most large mutual funds. Post SEBI reclassification it becomes even more difficult for them to beat the Index.

Think about it. And then go for it.

There are many who will have clever answers of why we should not be comparing the Nifty 50 (as it is too narrow an index) or the Nifty 500 (as it is not available in an investible vehicle). Those are however easily addressable arguments, which we will, in the next few posts.

Findings from our studies were carried in ET Prime, on 4th March 2019, the link to which is here: Mutual funds sahi hai but returns nahi hai

Important Disclaimer: Please do not treat anything on our blog as investment advice. We do not provide any recommendations of any stocks or securities. Any stock mentioned may be merely by way of an example.