Too passive?

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

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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.