For price-conscious investors, ETFs may be a better fit than index funds, says Pratik Oswal of Motilal Oswal AMC

economictimes.indiatimes.com:

The argument that large passive flows don’t allow for an efficient price discovery is a bogus theory since the biggest segment in the market is not passive but equity shareholders, Pratik Oswal, President, Passive Funds, Motilal Oswal AMC tells ET Wealth's Sanket Dhanorkar.A chunk of large-cap flows now goes into passive strategies. Even non-EPFO flows are higher. Is this shift a structural story? The non-EPFO flows into passive large-cap funds is surprising.

This is definitely a trend. Most advisers and wealth managers have also taken the stance that when you play the passives, it has to be in large caps. This is where the efficiency is the highest.

Obviously, stock picking is relatively harder in the large-cap space. Most of the passive flows are in large caps, not just in India, but globally as well.Some market commentators argue that unrestricted passive flows can distort the market. What’s your take on this? The argument that large passive flows don’t allow for an efficient price discovery is a bogus theory, simply because the biggest segment in the market is not passive, but equity shareholders.

If you take the market cap of Google, or Microsoft, or Apple, the majority will be held by individual shareholders, institutions, pension funds and family offices. Mutual fund is just a vehicle. Even if 55-60% of the market is passive in mutual funds, that is still less than 20% of the overall ownership of these stocks.

The majority of holdings tend to lie with individual shareholders and active traders, which ensures that price discovery is taking place efficiently. To that extent, the argument does not hold.Passive funds now cover the entire spectrum of market caps, sectors and themes. What more innovation can we expect