Why The Psychology of Money author Morgan Housel prefers index funds over active mutual funds

Speaking at the Moneycontrol's Global Wealth Summit on March 7, 2025, the bestselling author said he has mostly invested his money in index funds. However, this is not because he has anything against active funds.

Talking about the reason why he prefers index funds over other investment funds, Morgan shared just one reason: He likes to keep his investments as simple as possible. But this doesn’t mean he thinks nobody can outperform the market.

Morgan said smart investors can outperform the market. They have done this in the past, they can do it now, and also in the future.

What are index funds?

Index funds are a type of mutual fund designed to track and generate returns similar to specific stock market indices, such as the Nifty 50, the Nifty Midcap Index, etc.

These funds may be suitable for risk-averse investors who are looking to passively generate returns similar to an index of their choice. While these funds are cheaper than actively managed funds, they are also subject to market risks and volatility.

Index funds simply attempt to match or track the underlying index's performance over time.

According to the Association of Mutual Funds in India (AMFI), the index funds may also be suitable for first-time mutual fund investors.

However, index funds have limited flexibility compared to non-index funds. Moreover, there is a risk that the fund manager may fail to accurately track the underlying index, according to AMFI.