Many mutual fund investors are shifting to index funds and exchange-traded funds (ETFs) in the large-cap space, disappointed by the poor performance of actively managed large-cap mutual funds over the past year, where of the 32 large cap funds, only two managed to beat their benchmarks.“In the large-cap space, we are recommending index funds as we believe that increasingly it will be difficult for the fund manager to generate alpha there,” said Jitendra Solanki, a Sebiregistered investment advisor. The expense ratio of large cap funds, which varies for most large cap funds, is in the range of 2-2.5%. Fund houses have to move to value-based pricing, which means a lower expense ratio in a largecap fund,” said Radhika Gupta, CEO, Edelweiss Mutual Fund.Sensing investors will be interested in index products soon, fund houses have been launching a series of index and smart beta products to attract them. Aditya Birla SL Mutual Fund launched a Nifty Next 50 ETF, while SBI Mutual Fund recently launched SBI ETF Quality as its first smart beta offering.Index fund is a type of mutual fund with its portfolio constructed to match the components of the broader index such as the Nifty 50 or S&P BSE Sensex. Investors have been slow to allocating funds to these products as active fund managers have so far been successful in providing alpha.

Source: Economic Times December 18, 2018 04:03 UTC