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Active equity vs passive equity investing in India

Tue, 12 May 2026 00:00:00 +0000

The active-versus-passive debate in Indian equity investing examines whether actively managed equity mutual funds, where a fund manager selects stocks based on research and conviction, consistently deliver higher risk-adjusted returns than passively managed funds that simply replicate a market index at lower cost.

This article presents the empirical evidence, cost analysis, and structural arguments advanced for each approach in the Indian market context as of 2024.

Definitions

Active equity fund: A fund where a fund manager and research team construct a portfolio of stocks based on fundamental analysis, valuation, sector views, and risk assessments. The fund’s benchmark (e.g., Nifty 50 TRI, Nifty 500 TRI) serves as the reference; the manager aims to generate alpha (return above the benchmark). Cost is higher due to research staff, portfolio management fees, and higher transaction turnover.

Mutual fund vs ETF in India

Tue, 12 May 2026 00:00:00 +0000

An exchange-traded fund (ETF) and an open-ended mutual fund are both pooled investment vehicles regulated by the Securities and Exchange Board of India under the SEBI (Mutual Funds) Regulations, 1996. Both pool investor money and hold a portfolio of securities. Their key structural difference is the mechanism through which investors buy and sell units: mutual fund units are transacted directly with the AMC (or its registrar) at the day-end NAV, while ETF units are bought and sold on a stock exchange (NSE, BSE) at market prices throughout the trading session.

Nifty BeES, India's first exchange-traded fund (2001)

Tue, 12 May 2026 00:00:00 +0000

Nifty BeES (Nifty Benchmark Exchange-Traded Scheme), launched on 28 December 2001 by Benchmark Mutual Fund on the National Stock Exchange of India, was the first exchange-traded fund in India and the first equity-index ETF in Asia. It tracked the Nifty 50 index, with each unit representing one-tenth of the Nifty 50 index value, and was listed and continuously traded on the NSE during market hours at prices close to its net asset value. The launch of Nifty BeES preceded any mainland Chinese or Japanese equity ETF and inaugurated passive index investing as a viable instrument for Indian retail, institutional, and provident fund investors.

Nippon India Mutual Fund

Tue, 12 May 2026 00:00:00 +0000

Nippon India Mutual Fund is an Indian asset management company, formally incorporated as Nippon Life India Asset Management Limited (NAM India), and one of the largest mutual funds in India by assets under management. The AMC is sponsored by Nippon Life Insurance Company, one of Japan’s largest life insurers, which holds a majority stake. As of March 2024, the fund house managed assets exceeding Rs 4.5 lakh crore across over 100 schemes including equity, debt, hybrid, passive, and exchange-traded funds.

Passive Investing Wave in India (Post-2018)

Tue, 12 May 2026 00:00:00 +0000

The passive investing wave in India describes the structural shift that occurred after 2018 in which index-tracking mutual fund schemes – comprising exchange-traded funds (ETFs) and index funds – grew from a marginal segment to one commanding Rs 11 lakh crore in assets under management by March 2025. The wave was driven by a convergence of factors: growing evidence that most actively managed large-cap funds underperformed benchmark indices over rolling periods, EPFO’s large and predictable equity ETF mandates, the entry of low-cost digital investment platforms, and SEBI’s MF Lite framework that lowered the entry barrier for passive-only AMCs.

SBI Mutual Fund

Tue, 12 May 2026 00:00:00 +0000

SBI Mutual Fund is an Indian asset management company incorporated as SBI Funds Management Limited (SBIFM), sponsored by the State Bank of India in association with AMUNDI S.A. of France. It is the largest mutual fund in India by assets under management, with an AUM exceeding Rs 9 lakh crore as of March 2024. The AMC was the first non-UTI mutual fund entity in India, having launched its first scheme in June 1987, and has operated continuously since, accumulating a scheme portfolio of over 100 open-ended funds across equity, debt, hybrid, passive, and solution-oriented categories.

SEBI Mutual Fund Lite framework (India)

Tue, 12 May 2026 00:00:00 +0000

The SEBI Mutual Fund Lite (MF Lite) framework is a simplified registration and operational regime introduced by SEBI in 2024 to encourage new entrants to establish asset management companies (AMCs) that offer exclusively passive investment products, index funds and Exchange-Traded Funds (ETFs), without the full regulatory burden applicable to active fund management. The MF Lite framework was finalised through SEBI’s circular and amendments to the SEBI (Mutual Funds) Regulations, 1996 in 2024, following consultation papers issued in 2022 and 2023. The primary policy objective is to increase competition in India’s passive fund segment (which has historically had fewer participants than the active segment), lower costs for investors, and enable fintech, technology, and financial services companies with strong distribution capabilities to enter the market without meeting the full net worth and track record requirements of traditional AMC registration. The framework is administered by the SEBI Investment Management Department.

Tracking difference in index funds

Tue, 12 May 2026 00:00:00 +0000

Tracking difference is the cumulative return of an index fund’s benchmark minus the fund’s cumulative return over a specified period, expressed in percentage points. Unlike tracking error (the standard deviation of periodic return differences), tracking difference is a single signed number that directly measures the magnitude of the fund’s under- or over-performance relative to its benchmark over the full measurement period.

Tracking difference is arguably the more investor-relevant metric for cost comparison among passive funds: it shows the actual wealth impact of owning the fund relative to the benchmark, not just the volatility of daily deviations.

Tracking error in index funds

Tue, 12 May 2026 00:00:00 +0000

Tracking error is the annualised standard deviation of the difference between a mutual fund’s periodic returns and the returns of its benchmark index over the same period. It is the primary metric for evaluating how accurately an index fund or exchange-traded fund (ETF) replicates its target benchmark. A tracking error of zero would imply perfect replication, in practice, every fund has some non-zero tracking error driven by costs, cash drag, and rebalancing lags.

ETF investing on Zerodha

Mon, 11 May 2026 00:00:00 +0000

Exchange-Traded Funds (ETFs) are open-ended mutual fund schemes that are listed and traded on stock exchanges in real time, similar to equity shares. Unlike traditional mutual funds where units are bought and sold at end-of-day NAV, ETFs have a continuously updating market price during trading hours. Zerodha provides full access to all ETFs listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) through Kite. ETF investing through Zerodha carries zero brokerage for delivery (CNC) orders, making it cost-effective for long-term investors.