Too passive?

To the list of red-hot debates among investors, you can add the ‘passive versus active’ dispute right on top.

The arguments are nasty and brutish. Understandably so, because passive funds have gained prominence in India for their ‘low-risk, cost-efficient’ benefits in recent years. But, like with everything in life, passive funds are not all sunshine.

Before one cries “Corporate agenda!”, let’s set the context: at no point are we poohpoohing passive investing; instead, we have noticed a short-term flaw following the recent Adani-Hindenburg saga. Since these funds simply mimic a market index to pick stocks, the presence of Adani stocks in them has left these funds vulnerable – at least more than active funds. But before we reveal our observation, let’s first understand the origin story of their rivalry.

The rise of passives
The year 2018 was a turning point in the active-passive debate, as active large-cap funds trailed their passive peers by a glaringly wide margin. Since then, passives have held the whip in the contest, beating active large-cap funds in four out of five years.