Invest in a combination of active and index funds instead of sticking to one

Comparisons between passively-managed index funds and actively-managed equity diversified active funds are common these days. The popularity of index funds and the inclination of investors towards these funds have increased not just because they are expected to outperform active funds in future, but also for their lower expense ratios. This has started reflecting in the percentage of active funds outperforming index funds in the last one- and two-year periods. Hence, prudently-managed active funds would have better potential to outperform index funds until Indian markets mature further. Investors with medium or higher risk profile can have limited allocation in index funds and more in active funds as these funds invest in companies with high growth potential along with the well-established ones with marginal higher risk.