Managing long term portfolio

With very little efforts you can beat any mutual fund while being buy only long term investors,

First, why many mutual funds underperform the index on a long term average

1. they have to keep cash for redemptions, which gives little returns

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2. They have to pay overheads like salaries, office expenses, sales and marketing expenses which is around 5-6% of the AUM they handle

smaller the MF, higher will be such % but bigger MFs have different problem

3. When market falls rapidly, like march 2020, they see huge redemptions as everyone wants to be out before others

So literally they are forced to sell their long term holdings because of short term market shake outs

similarly when market makes new top, they have huge inflows and they are forced to buy for long term at the top, if market corrects from there, average returns for older investors also go down

4. High attrition, in spite of best of the salaries, their star fund managers leave the ship (example Kenith of IDFC ) , so when a MF is at peak and returns are getting noticed, its 5 star rated, manager leaves with his team and we see years of under-performance