A common misconception about stock market investing is that one always needs to be on one’s toes – trading non-stop from 9:15 am to 3:30 pm, keeping your eyes peeled for every tiny change in the prices of the stocks and acting upon them immediately. Well, this may be one way of doing it; but it is certainly not the only way.

Passive Investing: Slow, Steady, Simple

Passive investing is an alternative to the high-adrenaline attitude of active investing. While active investors buy and sell stocks every day, even multiple times a day, passive investors believe in the buy and hold strategy. They are in for the long haul; short and quick profits do not entice them.

The most favored passive investing instruments are Index Funds and ETFs. Since these instruments simply replicate established and trusted indices like the Nifty50 or Sensex, etc. they need not be managed continuously. This, in turn, reduces transaction costs and relieves them from a host of other complex decisions an active investor has to make. At the same time, it can gives the investor a feeling of security and power – the investor knows exactly the stocks in which his funds have been allocated and can easily keep an eye on them by simply studying the underlying index.

Since indices do not tend to be overly volatile like individual stock prices, passive investing can have some chance to give investors reasonable returns over the years.

A Difference in Perspective

A major difference between active investing and passive investing is the underlying principle and perspective on which each is based. Active investing aims at optimizing gains and, if possible, being one step ahead of the market. Passive investing has no ambitions of actually beating the market. It is content in matching it and slowly making their money, knowing that the market may posts positive returns over time.

Active investors often debate the behavior of passive investing, citing weaknesses such as having too limited a scope with regards to the instruments available and the returns gained. Despite its limitations, passive investing is popular and preferred in most developed markets of the world. According to a study by the Federal Reserve Bank of Boston, “As of March 2020, passive funds accounted for 41 percent of combined U.S. MF and ETF assets under management (AUM), up from three percent in 1995 and 14 percent in 2005.”

Passive Investing: Is It For You?

One of the biggest benefits of passive investing is that the investor need not be an expert in stocks and finance. Newbie investors and students who are just embarking on their investment journey can invest their small treasure trove of savings in an index fund and monitor it as and when possible. Of course, some preliminary homework on the subject will go a long way in choosing the right index fund to invest in, especially in the global market where a lot more options are available.

A Game-Changer in the Indian Market

Unlike developed markets., passive investing has had a slow start in India. But over the last few years, it has been gaining momentum. With the interest rates attached to traditional investment instruments gradually going down, investors are now seeking new avenues of building up their hard-earned wealth. Passive investments are slowly coming into the limelight thanks to their ease and simplicity.

As one of the fastest-growing economies, the Indian stock market has an optimistic future ahead of it, and passive investing will have a chance to further cement its foothold here. Seeing the kind of response it has garnered on the global level, perhaps it is finally time to give passive investing strategies some serious consideration.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.