Today morning I got a call from Hasmukh

Hasmukh: I have one question can you come to my house please

I: Yes of course I will be there in evening

Hasmukh: Though I know your expertise and experience in managing my portfolio since years and their allocation too. But while reading one of the financial magazine I came across investments in index fund ,What is it about? Have we invested in index fund?Are they better to invest?

I:Thank you for asking me your query but first of all let me congratulate you for the purchasing a new superb car ŠKODA Kodiaq

Hasmukh: Thanks.....  it is the topend  model newly launch

I: What do you mean by topend model ?

Hasmukh: you get the additional and best of the accessories inbuilt in car than the base model.

I: Okay okay got it thanks for the information and once again congratulations and enjoy safe driving your new topend car...

Now coming to your question regarding index fund let me explain you .... It is the same like buying a base car (index Fund ) and topend car ( Blue-Chip Fund ),let me explain you in detail

What is INDEX Fund ?

  1. Index fund is a fund which invest strictly in SENSEX or NIFTY stock only with almost the same weightage allocation as they are in Index .
  2. So we can say that it is more of a passive fund where fund manager conviction on sectors or any of the companies doesn’t matter.
  3. They can’t be in cash (debt) option in bearish phase of market.
  4. They cannot increase or decrease allocation even if the news of any company comes bad & they have to hold it till the time Exchange don’t decreases their allocation (stocks like YES Bank )

Now let’s understand Blue-Chip Fund.

  1. They do almost Invest in top notch large cap companies which are in SENSEX or NIFTY (almost 85-90% ) and balance in to emerging Blue-Chip companies (say 50th to 75th top  company by market cap ) where they have a conviction for a better performance.
  2. Also they can Increase or decrease, buy or sell companies allocation according to the conviction of a fund manager.
  3. So it is a actively managed fund where fund manager has a target or goal is to outperform their respective benchmark and so their performance is directly related to their bonus.
  4. Secondly the fund manager of this scheme can go for cash option up to 15% whenever they predict.

 

Moral of the story: Whenever You go to a professional or expertise one can expect at least outperformance to their benchmark indices whether it is upside or downside.

So according to me we prefer to invest in actively managed Blue-Chip Fund where we expect better returns then their benchmark 👍