The Simple Truth About Stock Market Investing: Why Indexing Wins (Every Time) – With Real Examples from the Indian Capital Market

 

The Simple Truth About Stock Market Investing: Why Indexing Wins (Every Time) – With Real Examples from the Indian Capital Market

Let’s talk about something every investor faces: Should you actively pick stocks or simply invest in index funds? It’s a big question, but some of the sharpest minds in finance—like Warren Buffett, Charlie Munger, and John Bogle—have come to a simple conclusion: Most people should choose passive index funds.

Here’s why that advice holds true in the Indian market too.

1. The Calm of Passive Investing: “Nirvana”

Imagine sitting back, stress-free, while your money grows in sync with the market. That’s the beauty of passive investing, and it applies just as much to the Indian stock market as to global markets.

 

• Low Costs, Steady Gains: In India, index funds like Nifty 50 and Sensex ETFs have expense ratios that are typically very low, around 0.1% to 0.5%. These funds don’t try to beat the market; they simply mirror it, offering you a piece of the entire stock market.
• Market Average Returns: Index funds track large market indexes like Nifty 50 or BSE Sensex. Over the long term, these indexes have historically offered reliable returns. For example, the Nifty 50 has delivered an average annual return of about 12-15% over the last 20 years.
• Nirvana of Consistency: Passive investors in India enjoy peace of mind. There’s no need to track daily market movements, guess which stocks will outperform, or worry about missing the next bull run. You’re simply riding the market’s overall performance. 🌱

 

2. The Stress of Active Investing: High Costs, Higher Risks

 

Now, let’s flip to the other side—active investing, where fund managers try to pick winning stocks and time the market. This is common in India too, but it’s a risky game.

• High Costs, Low Success: Active mutual funds in India often have higher expense ratios, ranging from 1.5% to 2.5%. These fees might seem small, but over time they take a huge bite out of your returns. Many investors in actively managed equity mutual funds end up underperforming the market, especially after costs are considered.
• Recent Examples of Active Funds Failing: In 2020, during the pandemic, several active fund managers struggled to keep up with the sharp market fluctuations. While index funds rebounded with the market, many active funds failed to recover at the same pace. For instance, during that period, HDFC Equity Fund and Aditya Birla Sun Life Equity Fund, two popular active funds, saw underperformance when compared to index funds.
• 80% Fail to Beat the Market: Research shows that about 80% of active fund managers in India fail to outperform benchmark indices like Nifty 50 over the long term. This is a staggering number and mirrors global trends. In fact, according to a report by SPIVA India, over a five-year period, 86% of large-cap active funds underperformed the Nifty 50.

3. The Lucky Few: 20% Active Winners

 

Yes, there are still a few active investors who manage to outperform the market. But these are rare cases, and even then, consistent outperformance is elusive.

• Example of an Active Fund Outperforming (But Temporarily): Let’s take the example of SBI Small Cap Fund, which had stellar returns between 2017-2019, significantly outperforming the broader market. However, during the market crash of 2020, it faced a significant downturn, proving that success in active investing can be volatile and unpredictable.

This proves that while some funds might have short bursts of high returns, consistently outperforming the market over the long term is extremely difficult.

Real-Life Example of Passive Success: The Nifty 50 Index

 

Take a look at the Nifty 50 Index, which represents the 50 largest companies listed on the National Stock Exchange (NSE). Over the years, it has steadily climbed, fueled by a diverse portfolio of top-performing companies like Reliance Industries, TCS, Infosys, and HDFC Bank.

• Nifty 50 ETF Growth: Over the past decade, Nifty 50 ETFs have become one of the most popular passive investment products in India. For example, the Nippon India ETF Nifty BeES has delivered an average return of over 12% annually for the last 10 years, without the stress of active stock-picking or fund manager risks.
• Market Recovery Post-Covid: After the market crash in March 2020 due to the COVID-19 pandemic, the Nifty 50 index rebounded sharply, recovering all its losses and even hitting new highs by the end of 2021. Investors in Nifty 50 index funds enjoyed the recovery without having to time the market or worry about individual stock picks.
• Less stress. You don’t need to monitor your portfolio constantly.
• Lower costs. Index funds charge much lower fees than active funds.
• Better long-term returns. Data shows that most active managers can’t beat the index over the long haul.

The Final Verdict: Indexing in India is a Winning Strategy

Whether you’re investing in the Nifty 50, Sensex, or other index funds, the story is clear: Most investors are better off going passive.

Indian investors who choose passive strategies are riding the market’s natural growth—free from the anxiety of trying to pick winners and losers.

So, instead of sweating over stock picks, you can relax, knowing that your money is following the market’s steady upward trajectory. Welcome to your investing Nirvana. 🌿

Final Takeaway:

In the Indian market, just like the global market, index funds are a safe and smart choice for most investors. Don’t gamble on beating the market—just ride its natural growth!