Over the years, passive investing turned out to be the new norm of investing among the people of India and changed the investment culture drastically. Contrary to active management of funds, passive management does not involve continuation on the part of the investor of ongoing decisions and analysis. This investment strategy provides a cheap and consistent method to attract investors willing to wait for long-term gains. But why passive investing is on the rise among Indian investors? Now let’s further discuss the increasing trend of using this method.
The Emergence of Low-Cost Investing Products
The two biggest factors that have led to the increased focus on passive investing in India include the increasing money costs. The passively managed traditional active funds are very expensive with high management charges that are usually reflected in the funds’ performance. Guru strategies, on the other hand, are more expensive due to the high fees charged by active management; here, the investor has comparatively cheaper forms of passive investment instruments like ETFs or Index Funds.
In fact, according to the Morningstar report, passive funds are cheaper than actively managed funds by 60-70% on average. Such cost efficiency is important in India where more and more small and medium investors are in search of ways of earning high returns without proportionate managerial costs.
More Profits in the Long Run
Research has indicated that over relatively extended periods, passive investing has surpassed the active management of funds. In a study conducted by SEBI in 2023, 61% of actively managed funds underperformed their index averages over the last decade in India. This has led Indian investors to move to ETFs – which track the performance of the market and do not expose the investors to underperformance due to the actions of fund managers.
Since equity markets are expanding, investors will be consistently rewarded by index funds and more specifically passive funds tracking famous indices such as the Nifty 50 or Sensex. This has over time encouraged a trend toward passivity, especially among long-term investors.
Growth in the use of Online Channels
Adjacent to this, accessible digital investment platforms contributed to the popularization of passive investments. For instance, apps such as Groww, Zerodha, and Upstox allow Indian investors to invest in low-cost index funds and ETFs with little hustle. These platforms are easy to use, and thus new investors can invest small capital and expand their portfolio in time.
These platforms have kind of popularized investing in the stock market, providing users with educational sections and features designed to help them gain better insights into passive investing. The factor of investing via an application has been another great draw to mobilize young investors who expect minimal interaction with their investment tools.
Increased Awareness and Financial Literacy
This paper discusses the developments of financial literacy in India which has witnessed government and private organizations launching various programs. With such financial awareness rising to the surface, more investors are shifting to passive investment. Specifically, own finance bloggers, podcasts, and YouTube channels have played an influential role in changes to explain the essence of passive investing.
Consequently, Indian investors are no longer limited to investing in specific shares of stocks or gaining risky and rewarding passive managed funds. However, they are shifting to ETF investing as an option that gives them strong returns but with less risk than the aggressive equity funds.
Stability and Diversification
I believe passive investment acts as a buffer in volatile markets because it selects a universe of stocks across the market index. Unlike active funds which make investments with an eye on individual stocks, passive funds therefore make business investments with entire benchmarks of a market. This diversification serves to lower risk and spread market effects throughout an investor’s portfolio.
This is particularly important in the Indian market, where stock volatility can be more pronounced due to economic shifts or political events. By adopting a passive investing strategy, investors can reduce their exposure to risk while maintaining growth potential.
Conclusion
Passive investing is reshaping the investment landscape in India by offering an affordable, low-risk alternative to traditional active investing. With its low cost, superior long-term returns, and the ease of access provided by digital platforms, more Indian investors are discovering the benefits of passive investing. As financial literacy continues to grow and awareness about market indices spreads, it’s clear that passive investing is here to stay in India, empowering a new generation of investors to take control of their financial futures.