Question

Suppose you believe that the security market is at efficient in the semi-strong form. You are considering buying some mutual fund shares in your investment accounts. Which of the following statements is correct?

a. Actively managed funds are good choices because they may consistently beat the market, they are tax efficient and have lower expenses.

b.Actively managed funds are not good choices because they cannot consistently beat the market although they are tax efficient and have lower expenses.

c.Index funds are not good choices because they are not tax efficient, their management fees are higher although actively managed funds cannot consistently beat the market.

d.Index funds are good choices because they are tax efficient and have lower expenses and because actively managed funds cannot consistently beat the market.

Answer 1

Index fund will always be good choices in semi efficient form of market because only Index funds can provide with highest rate of return because they are replicating the market portfolio as actively managed Mutual Funds cannot outperform because publicly available information have already been discounted into the stock price.

Correct answer will be option (d) Index funds are good choices because they are tax efficient and they have lower expenses and because actively managed funds can not consistently beat the market