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. If the stock market is efficient, in what type of mutual fund should you invest?

. If the stock market is efficient, in what type of mutual fund should you invest?
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Answer #1

If the stock market is efficient, then there is no active return to be achieved by a mutual fund over the market return. It is therefore better to invest in a fully diversified mutual fund such as market funds that reduces the standalone risk of an individual stock to the minimum. Also, one has to look for mutual funds that provide tax rebates as this may increase effective return to the extent of tax rate of the individual. It is therefore not advisable to invest in funds such as growth funds which invest in fewer companies that are usually higher risk too.

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