The interest in passive investments has increased in India in recent years. This trend was due to a noticeable outperformance: First, the interest in Nifty Next 50 had increased – as usual after this The index started moving south in 2018. Then the Nifty and Sensex, as some stocks held them while the rest of the market suffered. In this article, I discuss why passive investors should avoid making the same mistakes as active investors.

Before we begin, we need to understand that active fund underperformance is not a “current phenomenon” in India. We’ve already noticed that active mutual funds have struggled to beat Nifty 50 for the past seven years! See also: Active Mutual Funds Poor Performance: Is This a Recent Development?

Except that after February 2018 the opportunities in the lower half of the visibility of the Nifty 50 and Nifty 100 dried up and index funds shot to the top of the return table and the return differential between the Nifty 50 and Nifty 50 Equal-Weight Index was at an all-time high in December 2019. The March 2020 crash lasted until it was rolled back.

We have compiled enough data. In this article I want to discuss the mindset of active and passive investors. It is not necessary to adopt an extreme stance to justify your decisions. In fact, there is no need to justify it at all!

Allow me to explain. The reasons for choosing active funds are well known: “Indian is not a developed market like the US. Finding alpha isn’t that difficult; There are opportunities in the mid and small cap segments. “etc.

Unfortunately, some of the reasons for choosing passive funds are just as extreme: “If you choose passive funds, you will surely beat most active funds in the long run.”

Yes, this is already a fact we’ve seen with US mutual funds: only 582 out of 3,474 US large-cap funds outperformed the S&P 500 in the last 10 years. And it could be a fact for Indian funds in the future too Be MFs (currently around 50:50 which is just as bad – links within the article above).

However, “believing in it” when starting passive funds is no different from expecting a 15% return from a “long term SIP” or assuming that “alpha is definitely possible in the Indian market”.

There will always be some funds that beat the market – today or tomorrow. Only an investor who realizes that it is impossible to pick future winners today should get into passive funds. Otherwise, the moment some funds outperform, the fear of missing out will prevail. See for example: After the market crash, 80% of active large-cap funds outperform Nifty, Nifty 100.

For the would-be passive investor, it should be irrelevant whether 25% or 50% or 85% of active funds are underperforming the market today or tomorrow. Nothing changes the fact that a future outperformer cannot be identified today and active investing means fund hopping based on past data. Everyone likes added returns, but the real passive investor appreciates the real cost of finding alpha.

If a passive investor does not accept this reality, interest in passive funds will wane as quickly as it started. The passive investing gang tends to have a more sacred attitude than you, making it sound like only the alpha seekers are exposed to cognitive prejudice. Try the following:

  • I am invested in a Sensex fund, but everyone only talks about NSE indices. Am i missing something?
  • Which index fund is the best to start a SIP?
  • Can I invest in more of the Nifty Next 50 for more returns?
  • ABC launches the ABC Nanocap Index Fund. I already hold four index funds; Should I consider this NFO to cover the nanocap segment?

Fact-based investing has to guide our decisions, but what makes us stay the course is what we believe in. A sense of superiority in our investment beliefs and decisions is both unnecessary and harmful.

Share if you found this useful


Use our robo-advice Excel template for a complete financial plan! More than 400 investors and consultants use this!


Unveil the secrets of successful financial advisors and entrepreneurs with our new course!


My new book for children: “Chinchu is getting a superpower!” is now available!

Both boy and girl versions of Chinchu are given a superpower
Both boy and girl versions of Chinchu are given a superpower.

Most investor problems stem from a lack of informed decision making. We all made bad decisions and money mistakes when we started making money and spent years correcting those mistakes. Why should our children go through the same pain? What is this book about? If we, as parents, had to cultivate one skill in our children that is critical not just to money management and investment, but to every aspect of life, what would it be? My answer: Good decision making. In this book we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan it and teach him some key decision making and money management ideas is the narrative. What the readers say!

Feedback from a young reader after reading Chinchu receives a superpower (small version)
Feedback from a young reader after reading Chinchu is getting a superpower!

A book that you absolutely have to read for adults too! This is something every parent should teach their children from a young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple words. – – Arun.

Buy the book: Chinchu Gets a Superpower for Your Child!


How you can benefit from content writing:: Our new e-book for those interested in generating extra income from content writing. It’s available at a 50% discount for Rs. Only 500!



Take part in our courses in exclusive Facebook groups!

  • 550+ Members are now part of our new course: How to get people to pay for your skills! (Watch 1st lecture for free). Learn How To Get People To Pay For Your Skills! Whether you are a professional or small business owner who wants more customers via online visibility, or an employee who wants an extra income or a passive income, we’ll show you how to achieve it by showing your skills and build a community that trusts you and pays you!
  • Goal-oriented portfolio management! Join 2220+ members and get clarity on how to plan your goals and get the corpus you need, regardless of market conditions! Watch the first lecture for free! One time payment of Rs. Only 3000. No recurring fees! Lifelong access to videos (over 10 hours of content) in an exclusive Facebook group! Reduce Fear, Insecurity, and Doubt When Investing! Learn how to plan your pre- and post-retirement goals with confidence.

Do you want to check if the market is over or undervalued? Use our market valuation tool (works with any index!), or you can buy the new one Tactical buy / sell timing tool!


We publish Mutual Fund Screener and Momentum, low volatility stock screeners .every month.


About the author Pattabiraman Editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and lead author of freefincal. He is an Associate Professor at the Indian Institute of Technology in Madras. since August 2006. Connect with him via Twitter or Linkedin Pattabiraman co-authored two printed books, You can also be rich with goal-oriented investing (CNBC TV18) and Game changer and seven others free e-books on various money management topics. He is the patron and co-founder of “Paid India,“An organization promoting impartial, commission-free investment advice. He conducts free money management sessions for companies and associations based on money management. Include previous engagements World bank, RBI, BHEL, Asian Colors, Cognizant, Madras Nuclear Power Plant, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. Write to Pattu for a chat [at] freefincal [dot] com


About freefincal & its Content Policy Freefincal is a news media organization dedicated to providing original analysis, reports, reviews and insights into developments in mutual funds, stocks, investments, retirement planning and personal finance. We do this without any conflict of interest or bias. follow us on Google news. Freefincal serves more than one million readers (2.5 million page views) annually with articles that are based only on facts and detailed analysis of its authors. All statements are verified from credible and knowledgeable sources prior to publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented are only conclusions that are supported by verifiable, reproducible evidence / data. Contact information: Letters {at} freefincal {dot} com (sponsored contributions or paid collaborations are not maintained)


Connect with us on social media


Our publications

You can also be rich with goal-oriented investing

You can also be rich with goal-oriented investingThis book, published by CNBC TV18, is designed to help you ask the right questions, find the right answers. Since it includes nine online calculators, you can create custom solutions to suit your lifestyle too! Get it now. It is also available in Kindle format.


Gamechanger: Forget startups, join corporate and still live the life you want Gamechanger: Forget startups, join corporate and still live the life you wantThis book is for young earners who want to learn their basics from day one! It will also help you travel to exotic places at a low cost! Get it or give it to a boy Earner.


Your ultimate travel guide

Travel Training Kit Cover New This is an in-depth analysis of planning your vacation, finding cheap flights, cheap accommodation, what to do when traveling, how slow travel is better financially and psychologically, with links to the websites and holding hands at every step. Get the PDF for Rs 199 (Instant Download)


Free Android apps




LEAVE A REPLY

Please enter your comment!
Please enter your name here