Passive Investing
An approach that seeks to match an index's return rather than to beat it, by holding the index's constituents.
How it is identified
Test: security selection is determined by index rules rather than by judgement, and success is measured by tracking rather than by outperformance
Unit
qualitative
In depth
The case for passive investing is arithmetic rather than empirical: before costs, the aggregate of all investors holds the market and earns the market return, so after costs the average actively managed rupee must trail the index by the difference in fees. This holds in every market and every period by definition. The evidence for India is consistent with it, with the majority of large-cap active funds trailing their benchmark over long periods. Passive investing does not remove market risk, does not protect against declines, and guarantees participation in every constituent regardless of valuation.
Worked example
An index returning 12.0% gives 11.8% through a fund charging 0.20%. Active funds charging 1.8% collectively hold the same market, so as a group they must return about 10.2% before selection skill enters at all.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Passive Investing” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.