Want to create wealth in long term? Passive investing might be the answer 

India is undergoing a transformative economic shift, poised to become the world’s fourth-largest economy by nominal GDP in the near future. The once-distant $5 trillion milestone is now within reach, fueled by robust domestic consumption, forward-looking policy reforms, and a thriving entrepreneurial ecosystem.

In this dynamic environment, investors are actively seeking efficient strategies to capture India’s long-term growth potential. While active investing has traditionally dominated portfolios, recent data and global trends suggest that passive investing may be the more strategic choice for sustainable wealth creation.

The Challenge with Active Investing

Active investing relies on fund managers selecting stocks or timing the market to outperform benchmark indices. However, this approach carries risks such as fund manager bias, and higher costs that can erode returns.

As per our internal research, as on 31st March 2025, over 84% large-cap active funds, 79% mid-cap active funds and 90% of small-cap active funds have under performed their respective benchmarks.

These statistics highlight consistent under performance by active managers, making it challenging for investors to consistently identify “winning” funds over the long term.

Why Passive Investing Makes Strategic Sense in India

Passive investing aims to replicate the performance of broad-based market indices such as the Nifty 50, Nifty Midcap 150, Nifty Total Market, etc. This approach provides a diversified, low-cost alternative that eliminates risks associated with fund manager selection, stock selection and market timing.

The rise of digital platforms and mobile-first investing has democratised market access, enabling a wider segment of India’s population to participate in equity investing. In this evolving landscape, passive investing offers a reliable, efficient strategy for investors to align with India’s structural growth without frequent portfolio adjustments.

Globally, the US mutual fund industry is undergoing a significant shift toward passive investment strategies. According to ICI Factbook, as on 31st December 2024, US passive funds stood at $16.2 trillions of the overall US total net assets of $39.2 trillions, which accounts for approximately 41% market share. This market share has gradually increased from approximately 14% in 2010. The transition is largely driven by investors’ preference for low-cost investment options and the growing influence of mega-asset managers.

In India, the passive investment segment has witnessed a similar growth trajectory, with AUM expanding 6.9X between March 2020 and March 2025. Passive funds have emerged as one of the fastest-growing mutual fund categories, with AUM market share in the Mutual Fund industry increasing steadily from approximately 7% in March 2020 to 17% in March 2025 (Source: AMFI).

Unlocking the Power of Broad-Based Market Exposure

A standout product in this space is the Nifty Total Market Index, developed by NSE Indices. It includes 750 companies across large-cap, mid-cap, small-cap, and micro-cap segments, representing roughly 95% of NSE’s total market capitalization and spanning 22 sectors (Source: NSE Indices Ltd., AMFI, May 31, 2025). By comparison, the Nifty 50 covers only about 44% of the market cap. The Total Market Index offers broad exposure with reduced concentration risk, making it an ideal choice for long-term investors seeking diversification across market caps and sectors, minimal fund manager bias, and with significantly lower expense ratio.

Think of the Nifty Total Market Index as an “equity supermarket”, a single window through which investors gain exposure to the entire investible Indian equity universe. Unlike a literal supermarket where you pick and choose items, in equities, it is prudent to buy into the entire shelf—broad-based exposure helps mitigate the uncertainty of which market segment will outperform next.

Shifting the Focus: From Timing to Time in the Market

The true strength of passive investing lies in its alignment with a time-tested principle: staying invested over the long term. Rather than attempting to predict market winners, passive investing captures the full potential of the market itself.

As India’s GDP grows, its companies innovate, and its middle class expands, broad market indices will continue to reflect this progress. Passive investors naturally benefit from this growth trajectory without the need to forecast which sectors or stocks will lead the next rally.

Conclusion

India’s economic ascent is more than just a headline, it represents a generational investment opportunity. For those aiming to ride this growth wave efficiently, passive investing offers the best combination of diversified exposure and cost efficiency.

As the investment landscape evolves, the focus shifts from trying to outperform the market to participating fully with discipline, simplicity, and a long-term perspective. In this light, passive investing is not merely an alternative but a strategic imperative.

Hemen Bhatia is Executive Director and CEO, Angel One Asset Management Company