Passive pretenders

There's a curious charade playing out in the Indian mutual fund industry, one that turns the very concept of passive investing on its head. Fund houses have discovered a convenient loophole in SEBI's regulatory framework and are enthusiastically exploiting it. SEBI sensibly limits AMCs from launching just one actively managed fund in each plain category. This prevents the proliferation of near-identical products and reduces investor confusion. One large-cap fund, one mid-cap fund, and so on - a straightforward approach that benefits everyone. Except there's a catch. This limitation doesn't apply to passive funds. If there's an index, a fund can be launched based on it. And therein lies the opportunity that fund houses have pounced upon - commission custom indices and launch 'passive' funds tracking them. Suggested read: Sectoral & thematic funds are making everyone good money. Time to bite? The result? An absurd multiplication of indices. The National Stock Exchange now offers at least 120 equity indices, while the Bombay Stock Exchange has at least 64. While not all are created specifically for fund houses, they're readily available for AMCs. We now have indices with names like "Al