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 makes active decisions on what to buy, when to buy and how much to buy. In contrast, passive funds “outsource” these decisions to an index maker.
The fund 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 an active fund’s goal is to outperform the index over time.
Read also | Active vs. Passive Mutual Funds: Which is a Better Investment Bet and for Who?
Harshvardhan Roongta, chief financial officer at Roongta Securities, said that in developed markets, passive funds have long been dominant and manage the largest assets. However, in the Indian market, active fund management has traditionally had an advantage due to the potential to access information before others and generate alpha.
Roongta noted that in India it is harder to gain an insider advantage in terms of information and that investors are likely to increasingly focus on passive funds. He also noted that passive funds offer the advantage of lower costs, making them an attractive option for cost-conscious investors.
Read also | The passive mutual fund industry is overtaking ₹10 lakh crore AUM, according to Motilal Oswal AMC study
As passive funds gain traction in India, Let’s Talk Money provides valuable insights on how investors can navigate this evolving landscape, balancing the benefits of active and passive investment strategies in their portfolios.
For more information, watch the attached video
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