For a layman or first time investor, investing in the stock market is tough and risky call. This is fear clearly evident, especially when witnesses choppy market conditions and the large set of companies to be tracked. With analysts being paid seven figure salaries a retail investor develops an ‘inferiority’ complex towards investing as he feels his part-time study of companies and the market is no match to the informed decisions being taken by these analysts and fund managers. The cumulative decisions of these analysts and fund managers are generally reflected in the performance of the mutual funds they manage or advice. If mutual fund performance is considered the yardstick to measure the competence of the ‘knowledgeable’ investor, then the retail investor has little to worry about. There are very few fund managers who have consistently outperformed the market indices. This is true not only in India but also globally. So why is it difficult to beat the index, what is so special about indices that few fund managers are able to beat it on a consistent basis? The solution lies in the construction of the indices.
