Passive investing is about simplicity; dont give into active fund management lurking in the garb of thematic passive funds

Indian mutual fund industry, one that turns the very concept of passive investing on its head. Fund houses have discovered a convenient loophole in Sebi’s regulatory framework and are enthusiastically exploiting it.

Sebi sensibly limits AMCs to launching just one actively managed fund in each plain category. This prevents the proliferation of near-identical products and reduces investor confusion. One large-cap fund, one mid-cap fund, and so on. It’s a straightforward approach that benefits everyone. Except that there’s a catch. This limitation doesn’t apply to passive funds. If there’s an index, a fund based on it can be launched. Therein lies the opportunity that fund houses have pounced upon—commission custom indices and launch ‘passive’ funds tracking them.

The result? An absurd multiplication of indices. The National Stock Exchange now offers at least 120 equity indices, while the Bombay Stock Exchange has at least 64. While not all are created specifically for fund houses, they are readily available for AMCs. We now have indices with names like ‘Alpha Quality Value Low Volatility 30’, ‘EV & New Age Automotive’, ‘ESG’, ‘Enhanced ESG’, and my personal favourite, ‘ESG Sector Leaders’. This isn’t innovation; it’s simply clutter masquerading as choice.

Let’s be clear about what’s happening. These aren’t genuine passive funds in the spirit of the concept. True passive investing is about simplicity, capturing the overall market return without attempting to outperform it. When you invest in a Nifty index fund or a