Pradeep Kumar Kesavan, Equity Strategist at SBI Mutual Fund, also explained the fundamental difference between active and passive funds. In an active fund, a fund manager actively makes decisions about what to buy, when to buy, and how much to buy. Conversely, passive funds “outsource” these decisions to an index creator.
The fund then simply tracks this index over time, aiming to mirror its performance. From an investor’s perspective, this means that a passive fund will generally provide returns that closely mimic the index it tracks, while the goal of an active fund is to outperform the index over time.
Also Read | Active vs passive mutual funds: Which is a better investment bet and for whom
Harshvardhan Roongta, CFO of Roongta Securities, noted that in developed markets, passive funds have long been dominant, managing the largest assets. However, in the Indian market, active fund management has traditionally had an edge due to the potential to access information before others and generate alpha.
Roongta observed that in India, it is harder to gain a privileged edge of information, investors are likely to increasingly turn their focus to passive funds. He also pointed out that passive funds offer the advantage of being lower in cost, making them an attractive option for cost-conscious investors.
Also Read | Passive mutual fund industry surpasses ₹10 lakh crore AUM, says Motilal Oswal AMC study
As passive funds gain traction in India, Let’s Talk Money provides valuable insights into how investors can navigate this evolving landscape, balancing the benefits of both active and passive investment strategies in their portfolios.
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