Investor education must explain why beating benchmarks is tough: Experts

Investor education must explain why consistently beating market benchmarks is difficult, rather than focusing only on expense ratios, tracking error and low-cost products, panellists said at the fifth edition of the Business Standard BFSI Insight Summit 2026 in Mumbai on Wednesday.

In a panel discussion titled 'Getting the Next (Rupee) Ten Trillion' and moderated by Business Standard’s Abhishek Kumar, industry leaders discussed the role of active and passive investing, quantitative strategies, changing investor behaviour and the use of artificial intelligence (AI) in asset management. 

“Education will play a very important part, and education has to move beyond talking about low cost and passiveness,” Bhatia said.

He said investors needed to understand that alpha could be temporary and that consistently outperforming the market was difficult.

“You may generate alpha for a certain period of time, but alpha is transient. It keeps changing hands,” he said.

Bhatia added that investors who had tried different investment strategies were more likely to appreciate passive investing. 

Swarup Anand Mohanty, vice-chairman and chief executive officer of Mirae Asset Investment Managers (India), said there was room for different investment strategies as India’s financial markets evolved.

“Whether active or passive investing will dominate in the future, I think everything has a future right now,” Mohanty said.

“There is merit in every product. The investor base is changing, and younger investors are more agile than we were,” he said.

Mohanty also referred to the changing composition of India’s equity market, saying nearly 80 per cent of initial public offerings (IPOs) came from mid-cap and small-cap companies.

“That is what makes this space so exciting,” he said.

He added that rule-based investing had its merits over the long term.

“You cannot take away the merits of rule-based investing over the long run,” Mohanty said.

Vishal Jain, managing director and chief executive officer of Zerodha Mutual Fund, said investors needed to decide how different strategies fitted into their portfolios.

“There is space for every strategy in your portfolio. As an investor, you need to figure out what strategy and what percentage of the strategy you should have in your portfolio,” Jain said.

He said investors could divide their portfolios into core and satellite components, using the core for their primary investments and the satellite portion for other strategies, including active funds. ALSO READ: Mutual fund returns dip? Here's why experts say don't switch in a hurry

Jain said passive products were generally adopted as investors gained experience in financial markets.

“Passive is not sold; it is bought. Therefore, in most markets, you have to wait for an evolution to happen,” he said.

He said investors often experimented with stocks, derivatives and sector-based investments before turning to passive products.

Jain added that India had room for more asset managers and different distribution models.

“There is enough space for a lot more players to come into the market and still find investors,” he said.

“All different modes of distribution are going to work in India because there is still a lot of space and a lot to do,” Jain added.

Sandeep Tandon, founder and chief investment officer of Quant Mutual Fund, said investment strategies needed to respond to changing market conditions.

He said the period from 2012 to 2024 had seen a strong global bull run in which several investment strategies performed well. The subsequent two years had presented a different environment for investors.

Tandon said traditional quantitative models could become less effective when they failed to adjust to changing conditions.

“We live in a very dynamic world. Traditional quantitative models are not as effective if they cannot adapt to changing market conditions,” he said.

“We believe in adaptive asset allocation. Unless you continuously adapt your investment strategies, you risk losing relevance,” Tandon added.

He said India now had decades of historical market data that could support quantitative investing, while investors' individual goals, risk appetites and investment horizons also needed to inform portfolio construction.

Tandon also argued that investors should assess products on their returns rather than costs alone.

“We should evaluate investment products from a returns perspective, not merely a cost perspective. Low costs mean little if you cannot generate alpha,” he said, adding that nearly 70 per cent of his team was young and more willing to adapt to changing market conditions. 

Mohanty said asset managers needed to adopt AI to remain relevant as technology and data analytics changed the industry.

“I don't think AI will take my job, but an AI-enabled person will. An AI-enabled organisation will disrupt us,” he said.

Mohanty said Mirae Asset was introducing AI agents for attribution analysis and bias analysis in fund management. However, he expected the technology to have a greater impact on customer service than on fund management.

Tandon also referred to the growing role of data analytics and technology in investment decisions, saying asset managers needed to evolve as the industry became more dynamic.

The panellists also discussed the economics of running active and passive investment businesses.

Mohanty said passive strategies did not require the same branch networks as traditional active fund management, which could affect operating costs and margins.

“To run a passive strategy, I do not need a 200-branch network. The operating costs are different, and the margins can be attractive,” he said.

He said the growth of passive assets could change the economics of the asset management industry.

“As passive assets grow to Rs 80–85 trillion, the industry's balance sheet economics will look dramatically different. That could happen sooner than expected,” Mohanty said.

Bhatia said passive investing benefited from economies of scale because it required fewer fund managers and analysts than active strategies.

“In passive, we don't require a battalion of fund managers and analysts. So they cost us less than the active ones. Passive works purely based on the economies of scale,” he said.

The panellists said active and passive strategies would continue to serve different investor needs, with investor education remaining important as people assessed the risks, costs and potential returns of different products.