Why passive funds make sense for stressed investors

One sunny morning, Neil walked into the garden and saw his dad reclining peacefully in a chair, sipping coffee as if the markets had never fallen.

“Good morning, Papa! You look suspiciously relaxed. Did your stocks finally stop misbehaving?”

His dad laughed. “Not exactly. But I don’t invest in individual stocks much anymore. I’ve shifted most of my portfolio to index funds.”

Neil blinked. “Wait, what? You’re the one who got me hooked on direct stock investing in the first place!”

“I did,” his father admitted. “And stock picking is a great way to build wealth—if you enjoy tracking companies, reading annual reports and occasionally living with stress.”

Neil groaned. “Don’t remind me. My portfolio was bleeding last month. I stuck with my picks, but I wasn’t sleeping well.”

“That’s the thing,” his dad said. “Stock investing takes more than conviction. It needs emotional stamina. Every earnings miss, every global tremor, you feel it. And the more research you do, the harder it hits when something goes wrong.”

Neil nodded. “Exactly! I feel like I’m carrying the whole market on my shoulders sometimes.”

His father smiled. “That’s why I started balancing my portfolio with passive funds. They simply track the broader market, like the Nifty 50. No worries about picking the perfect stock or getting the timing right. If one company underperforms, others help carry the weight.”

Neil raised an eyebrow. “So I could’ve saved myself from tracking 10 stocks, six quarterly results, and getting two new grey hair every month... just by buying an index fund?”

“Pretty much,” his dad chuckled. “Passive investing gives you market exposure without the stress of trying to beat the market. Instead, it aims to match the market’s performance.”

Neil sighed. “So I could’ve done better by... doing nothing?”

“Well, not quite nothing,” his dad said. “You still have to decide to stay invested. But passive investing means you don’t have to watch stock tickers all day or second-guess yourself at every market move.”

“And I bet it costs less, too,” Neil added.

“Exactly. It’s like being part of a team where you don’t have to be the captain. You just ride along with the market’s average return, which, over the long term, has done pretty well.”

Neil smiled, seeing the appeal. “So I don’t have to give up stock-picking. But having passive funds as the base of my portfolio could help keep me sane.”

“Now you’re thinking smart,” his dad said, raising his coffee mug. “Even I haven’t stopped picking stocks completely. But my index funds give me peace when my picks don’t behave.”

Neil laughed. “You know what? I think I’ll let the index carry some of the load from now on.”

His dad raised his mug again. “Welcome to the other side. Passively yours!”

The shift toward passive funds

Neil isn’t alone in rethinking his approach. More investors are turning to passive funds, like index funds and ETFs (exchange-traded funds), to bring balance and calm to their portfolios. Here’s how index fund assets have grown in India over the past five years.

In just five years, the total assets in index funds have surged nearly 30 times. The appeal is clear: simplicity, lower costs, diversification and less emotional turmoil.

Final word

If investing in stocks often leaves you anxious or overwhelmed, it might be time to bring in some passive reinforcements. Index funds and ETFs let you stay invested in equities without the constant worry of picking winners or reacting to every headline. They’re simple, low-cost and surprisingly effective. Think of them as emotional insurance for your investing journey—a way to stay in the game without losing sleep.

An investor education and awareness initiative of Nippon India Mutual Fund.

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Also read: Are too many index funds a bad investment strategy?

This article was originally published on June 30, 2025.