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New vistas have opened up for investors looking for passive exposure to equity markets via index funds. Apart from funds based on mid-cap and smallcap indices, investors can now tap index funds offering multi-cap exposure. Motilal Oswal Nifty 500 index fund was launched recently. More such funds are on the cards. But how do multi-cap index funds compare with active peers?
For a lay investor with limited understanding of markets, experts recommend multi-cap funds. These funds move freely between segments to capture opportunities presented by market conditions at different points of time. They can invest more in mid- and small-caps when these appear undervalued. Conversely, they can hike presence in large-caps when broader markets turn expensive. Fund managers find investible ideas without capital size restrictions. But while this space affords access to opportunities across the market spectrum, the choice of fund is critical. Investors must choose a fund that has the capability to deliver healthy returns under this strategy.
An index fund helps you tide over this dilemma. It mimics the performance of the broader market index, at a fraction of the cost. In doing so, the fund takes the fund manager out of the equation. It does away with the need to monitor the fund performance for...