Mutual fund companies in India have distinctly changed their stance towards passive investing, of late. Having built a business model based on active portfolio management for years, companies are now increasingly veering towards products like index funds and exchange traded funds (ETFs). Until recently, funds were touting their superior stock-picking skills and expertise of their fund managers. Investors were led to believe that stock-picking is best left to the professionals who would do the job for them. Sadly, many funds have only managed to make a hash of active investing, succumbing to ills like portfolio churning, market timing, etc. They have done worse than their benchmarks.

Moneylife has regularly mentioned the fanciful antics of such fund managers and how they have resulted in a loss of wealth for clueless investors. Fund companies have come up with all sorts of gimmicks to try and grab the attention of gullible investors — be it fancy names like Special Situations Fund, Hi-Fi Fund and Progressive Themes Fund or other ‘innovative’ concepts.

Not any more, though. Since fund companies are often beaten by passive benchmarks, they have decided to cross over and join the enemy. So, the new fad among fund companies is passively managed funds which come in the form of index funds and ETFs.

Over the past few months, five new index funds have been launched, along with two ETFs. These include IDFC Nifty Fund, IDBI Nifty Index Fund, Taurus Nifty Index Fund, ICICI Prudential Nifty Junior Index Fund and, recently, IDBI Nifty Junior Index Fund.

More are in the pipeline. What it does to active investing is an embarrassing question which is best not asked.

— Moneylife Digital Team