Index Fund Corner
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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
Passive funds, including Exchange-Traded Funds (ETFs) and index funds, saw inflows of ₹8,023.12 crore.
Akshat Garg, AVP at Choice Wealth, notes that passive investing is gaining traction as cost-conscious institutions reduce active risk exposure.
The underperformance of many active funds in recent years has also contributed to this trend.
Sectoral and thematic funds attracted ₹5,711.58 crore, signaling investor preference for policy-driven themes, but passive funds remain a strong alternative for those seeking broad market exposure at lower costs.
Satish Dondapati, ETF Fund Manager at Kotak Mutual Fund, attributes the rise in passive funds to increasing awareness and their simplicity.
“Passive funds offer easy access to all market segments while eliminating the need for fund managers to pick individual stocks,” he said. “Their lower expense ratios make them more attractive in the long run.”
Cost advantage and long-term impact
The expense ratio impacts long-term returns, favoring passive funds.
“If a passive fund has an expense ratio of 0.50% and an active fund has 2%, their effective returns differ considerably,” Dondapati explained. “If both funds generate 10% annually, a passive fund investor earns 9.50% while an active fund investor gets 8%. Over time, this gap widens, reducing the compounding base.”
Market efficiency concerns
Some critics argue that excessive passive investing could create market inefficiencies by reducing price discovery.
However, Dondapati believes this is not yet a concern in India.
“Passive investing currently accounts for only 16.64% of total equity mutual fund assets. If this figure crosses 75%, inefficiencies could become a major issue,” he said.
Who should invest in passive funds?
Investors who prefer market-linked returns without active decision-making should consider passive funds.
“If someone wants to track an index without taking active risk, passive funds are a good choice,” Dondapati noted.
The rising popularity of factor-based and smart beta funds has further expanded options for investors seeking strategic exposure with lower costs.
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