A take on Index Funds and ETFs
But what you will read ahead should help you form an independent view of your preference.
Keep reading!
Forms of investing
Let’s understand a long-standing debate on active vs. passive investing in the investment community.
Active investing is a hands-on approach that requires a portfolio manager or an active participant to make investment decisions. The aim is to beat the stock market’s average returns by taking advantage of short-term price fluctuations. Historically, this investment approach has been popular during market upheavals.
Passive investing, on the other hand, takes a buy-and-hold mentality. Passive investors track a group of investments called indices. It is cost-effective as it involves less trading. The goal is to replicate the market’s success over the long haul, thereby resisting the temptation to react tactically, i.e. to short-term market moves.
The introduction of Index Funds in the 1970s made achieving returns in line with the market much easier. In the 1990s, Exchange-Traded Funds (ETFs) that track major indices simplified the process even further. They allowed investors to trade index funds as though they were stocks.
Maintaining a well-diversified portfolio is important to successful investing, and passive investing via indexing enables investors to achieve diversification.
Overview of the investment industry in India
As of March 31, 2024, the Indian mutual fund industry's assets under management (AUM) are an impressive ₹53.40 trillion. In the last ten years, the AUM has surged from
