Index funds vs active funds: which should you pick?

An index fund simply copies a market index (like the Nifty 50) at very low cost. An active fund employs a manager who tries to beat the index by picking stocks. Which is better depends on the segment.

The case for index funds

• Rock-bottom cost — expense ratios of 0.1–0.3% vs ~1% for active.
• No manager risk — you get the market's return, no surprises.
• Increasingly in India, most large-cap active funds fail to beat their index after fees.

The case for active funds

• In less-efficient segments — mid-cap and small-cap — skilled managers still add value more often.
• Active managers can sidestep overvalued pockets and manage risk.

A sensible default

Many investors build the core of their portfolio with a low-cost large-cap index fund and add one or two good active mid/small-cap funds for extra growth.

→ Find low-cost index funds via the MF Screener's "Index Funds" quick screen.