Active or passive: Investors need to find the right fit, say experts

At the BFSI Insight Summit 2026, fund industry leaders said AI, active, passive and quant strategies will shape mutual fund growth, with investor education key to wider participation

Artificial intelligence (AI), evolving capital markets and changing investor preferences are reshaping India’s mutual fund (MF) industry, but the future is unlikely to belong to any single investment strategy, leading passive and quantitative voices said during a panel discussion titled, “Getting the next ₹10 trillion,” at the Business Standard BFSI Insight Summit on Wednesday.

 

Sandeep Tandon, founder and chief investment office (CIO) of Quant MF, Swarup Anand Mohanty, vice chairman and chief executive officer (CEO) of Mirae Asset Investment Managers (India), Vishal Jain, CEO of Zerodha Fund House, and Hemen Bhatia, head-passives at Aditya Birla Sun Life AMC, argued that active, passive and quantitative investing would continue to find space, even as technology transforms portfolio management and investor education remains a key challenge.

 

 

While quantitative investing in India has largely revolved around predefined factors such as value, momentum and quality, advances in AI and data processing are enabling fund managers to develop more dynamic strategies that respond to changing market conditions, they said.

 

“Globally, the factor-based thesis is outdated because it’s very static in nature. Unfortunately, a lot of participants still define quant as a factor-based model, and it is no longer that,” Quant MF’s Tandon said, arguing that technology had expanded the scope of quantitative investing.

 

Mirae AIM’s Mohanty said India’s evolving capital markets offered opportunities for different investment approaches. “Every product has merit and will grow on its own merit. Active has its own space, and I personally feel quant has a lot of space too,” he said.

 

The panellists also highlighted that active and passive investing are competing approaches and investors should consider how each fits into their portfolios. Passive products can provide broader market exposure at a relatively low cost, while active strategies offer the possibility of outperforming benchmarks.

 

“Nobody can say passive will work all the time or active will work all the time. As an investor, you need to figure out which strategies, and what percentage of each, you should hold,” said Jain.

 

According to Bhatia, market-cap-based index funds and exchange-traded funds (ETFs) could form the core of a portfolio, with smart-beta strategies offering another option. “The core can be market-cap-based indices, which are passive funds, and even the satellite can come through smart-beta indices, which I would also say qualify as passive funds,” he said.

 

The panellists also highlighted the concern that investors continue to invest based on past returns. According to Mohanty, despite the growing sophistication of investment products, investors continue to direct money towards schemes that have delivered strong recent returns. This can undermine long-term wealth creation when fund performance subsequently changes.

 

“Eighty per cent of money comes on the basis of last-one-year return. That is the status of the investor, and the one-year return comes after the performance, not before it,” he said, calling for serious reflection on the industry’s record on investor education.

 

Bhatia said investors needed to understand how difficult it was for fund managers to consistently outperform their benchmarks. Quoting financial journalist Jason Zweig, he said: “Alpha has always been perishable, but in today’s world of instantaneous information it has the shelf life of un-refrigerated fish.”

 

AI essential to fund management

 

As investment decisions become increasingly data-intensive, asset management companies (AMCs) are building internal capabilities to process information, analyse portfolios and identify potential biases. Data security is also important since fund houses handle confidential information.

 

“An AI-enabled person will take my job and an AI-enabled organisation will disrupt us. So having an AI team is a given,” Mohanty said.

 

Tandon said advances in processing capabilities had made it possible to undertake substantially more analysis than before. He argued that the future of quantitative investing was promising across active and passive strategies, provided managers adapted to the changing environment rather than relying on static models. The next phase of MF growth, they said, will depend on reaching more households, rather than focusing exclusively on whether investors choose active or passive products.

 

Jain said passive investing often gains traction as investors become more experienced and recognise the limitations of repeatedly trying to beat the market. “Passive is not sold; it is bought,” he said, adding that the industry should focus on bringing the next 100-150 million people into the market.

 

Bhatia said investor education must explain the cost advantages of passive products as well as the challenges of generating alpha consistently. As

 

more mon­ey enters actively managed funds, he argued, generating market-beating retu­rns could become increasingly difficult.

 

The expansion of passive investing could also change the economics of asset management. Lower operating requirements and the ability to serve more investors at scale could make these strategies attractive to fund houses, even as active management retains its place.

 

Mohanty cautioned against assuming that passive products necessarily generate lower profits for AMCs. “For running a passive strategy, I don’t need a 200-branch structure, so the spreads can be very good from a balance sheet perspective,” he said.

 

Jain, meanwhile, pointed to the need for fund houses to build distribution journeys suited to younger, digitally native investors.