Fund Radar: Active/passive: What's better?

The debate between active and passive investing has been going on since time immemorial. Should you trust professional fund managers to beat the market with active funds or stick to the simplicity and cost-efficiency of passive funds that aim to match index performance? Active funds aim for market outperformance but come with higher costs and no guarantees. On the other hand, passive funds offer lower costs and eliminate the risk of underperforming the market, though they also cap the potential for outperformance. In India, passive funds have seen substantial growth recently. But is this rise consistent across all categories? Let's break down the numbers and trends to understand whether the shift towards passive strategies is justified. Asset distribution across fund categories Active funds continue to dominate most equity categories. Mid-, small- and flexi-cap funds have nearly 97 per cent, 95 per cent, and 99 per cent of their AUM (assets under management) in active funds, respectively. By contrast, in the large-cap segment, the asset base is primarily composed of passively managed funds, accounting for 65 per cent of the total. Of this, the EPFO (Employees' Provident Fund Organisation) has made substantial investments. Performance trends