If you are a new investor in stock market, one of the better & safe bet in long term could be investing in Index based funds. As a new investor there are few obstacles one face. one of them is selecting the correct Mutual fund for one's portfolio. Then you need to track the MF regularly to assess it's performance over time, and if necessary, you need to switch to some other funds. All these are required for actively managed funds, as you can not predict a actively managed fund's return with it's peers or benchmark index. But index based funds are passively maintained funds, and they try to broadly follow the return pattern of the index category they follow. So, in long term if the benchmark index performs well, you can be rest assured the index fund gives you a similar return percentage.
But if you are a pro in the market, then better to go for actively managed funds, as in long term actively managed funds returns better than index based ones.
Few advantages of index based funds over other Mutual funds :
1) Expense ratio is on lower side, than actively managed funds. Because these funds do not require high paying fund managers / stock analysts to pick / drop a certain scrip. The fund is passively managed and the performance computation is rather straight forward.
2) There is generally no possibility of change of the fund's investment approach or investment styles. For actively managed funds there is a possibility of investment approach change, which can be a problem with certain investors as they pick a certain fund considering it's style / approach. If something changes latter on, it might hurt the investor's choice.
3) Generally index funds holds better, when the market is falling down. Actively managed funds tend to fall more during market down turn than index based funds.
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