Passive Investing – Why Low-Cost Indexing Works

Introduction

By reading this article you will learn how passive investing can deliver a simple, low-cost way to participate in the market without chasing risky stock picks.

We’ll show you proven data showing that low-cost index strategies have outperformed many active funds and gained substantial traction.

You will gain 3 specific benefits:

A clear checklist to evaluate passive funds (costs, tracking error, suitability)
Insight into how passive investing is trending in India and what that means for you
A framework to integrate passive investing into your own portfolio using the Stressless Trading Method and the Kosh App

Why Passive Investing is Gaining Ground

The rise of passive investing is not just a fad — it is backed by strong evidence:

Low-cost index funds have major cost advantages over actively managed funds. Vanguard Research
A study found that over a recent ten-year period, active managers often underperform their benchmarks. Wharton Executive Education
In India, passive mutual funds have surged — AUM reached USD 137.51 billion in 2025, up from USD 21.53 billion in 2019. India Brand Equity Foundation

Why is this happening? A few reasons:

Investors expect simplicity and transparency → passive = less day-to-day decision making
Lower fees mean more of your money stays invested
Greater awareness among retail investors in India about index funds & ETFs Dezerv

3. A Different Take

Many generic articles on passive investing cover “low cost” and “diversification” but miss key dimensions:

Tracking error: It’s not just about low cost; how closely the fund tracks the index is critical. Goinri
Suitability to your goals: Passive investing isn’t one-size-fits-all. You must ask: what is my time horizon, risk tolerance, and what portion of my portfolio should be passive vs active?
Indian context realities: Many global articles ignore that in India the passive ecosystem is still maturing — supply is less deep, awareness is rising but gaps remain. Finnovate
Hidden costs / concentration risk: Passive investing isn’t magically risk-free. Over-concentration and index construction issues exist. arXiv

We’ll fill those gaps in this article.

Key Metrics to Check: Costs, Tracking Error and Suitability

a) Costs

Expense ratio is often the first metric everyone checks: lower is better. For example, an index fund with 0.05% vs an active fund with 0.66% can lead to substantial difference over decades. Boldin
But also check: other fees (fund turnover, hidden trading costs) may matter. arXiv

b) Tracking error

Tracking error is the annualised deviation between the index fund’s return and its benchmark. A large tracking error means you may not get benchmark returns. Goinri
Check the fund’s historical tracking error and how the index is constructed.

c) Suitability for your goals

Ask yourself:

Am I investing for the long term (10-20 years) or looking for short-term gains?
How much of my portfolio do I want in passive vs active strategies?
Is passive appropriate for that portion (i.e., I’m okay with “market return” rather than trying to beat it)?
Passive investing works especially well for the “core” of your portfolio — stable, low-cost, broad market exposure — while you might keep a smaller “satellite” of active strategies if you choose.

d) Diversification and concentration risk

Passive funds may track indexes that are heavily weighted in certain sectors or stocks. Overexposure can occur. Indiabulls Securities

e) Indian market dynamics

In India, passive funds now constitute about 17% of the mutual fund industry’s AUM (as of June 2025) — a sign of adoption, but still room to grow. The Economic Times
This means supply, fund options and investor education are still building — making the “suitability” check even more important here.

Passive Investing in India – The Data & Trend

Some key data points for India:

Passive mutual funds AUM = US$ 137.51 billion in 2025. India Brand Equity Foundation
Inflows of passive funds in India hit ₹19,056 crore in September 2025, led by gold/silver ETFs. Finnovate
Passive funds now represent around 17% of India’s mutual fund industry AUM (Rs 74.40 lakh crore) as of June 2025. The Economic Times

What this means for retail investors:

The trend is clear – more Indian investors are adopting passive strategies, signalling greater acceptance and maturity.
But caution: some flows are into tactical or commodity-based passive funds (gold, silver) rather than broad market index funds. Finnovate
As the ecosystem matures, cost differentials, competitive offerings and awareness will improve further.

How the Stressless Trading Method & the Kosh App Tie In

To bring this into actionable form, consider the framework of the Stressless Trading Method: a disciplined, low-emotion approach where your portfolio core is stable, low-cost, and passively managed; you minimise frequent trading, reduce costs, and avoid emotional decisions.

Here’s how you use the Kosh App (or any similar platform) in this context:

Use Kosh to identify and invest in well-designed passive funds/index ETFs that meet your cost and tracking criteria.
Set your “core” allocation in passive funds, where you won’t tinker monthly — this fits the “stressless” aspect.
Then, if you wish, allocate a small “satellite” portion (via Kosh) to active or thematic bets — but your base remains the low-cost passive core.
By doing so, you harness the rising trend of passive investing while staying aligned with a method that emphasises steadiness, cost discipline and long-term compounding.

Conclusion

In summary, passive investing is more than just a trend — it’s a structural shift in how retail and institutional investors alike are approaching market participation. With low cost, simple structure, and broad diversification, passive index strategies offer a compelling core to your portfolio. But as we’ve seen, the gains from passive investing come only when you check costs, tracking error, and suitability properly — especially in the Indian market where the ecosystem is still evolving.

By integrating passive investing into your strategy via the Stressless Trading Method and using platforms like the Kosh App to execute , you raise your odds of long-term success while reducing noise, emotional trading and unnecessary cost.

Next-Step: Download the Kosh App now (or your preferred investing platform) and evaluate three passive funds/ETFs: check their expense ratios, historical tracking error and how well they align with your long-term goal. Pick one to allocate your “core passive” investment today.

👉 Join the Stressless Wealth Community: https://chat.whatsapp.com/B79yCAm61fOH00Ip2DEWjd

❓ FAQs on Passive Investing

Q1. When do the new capital gains tax rules typically apply — on sale date or acquisition date?

It depends on jurisdiction and transitional provisions. Sometimes new rates apply only to sales after a given date, while old holdings remain under old tax rules (grandfathering). Always check local law or consult a tax advisor.

Q2. Can I offset capital losses against gains under new regimes?

Often yes, but rules vary. Some reforms allow more flexible offsets (e.g. long-term loss vs short-term gains). For example, in India a new bill proposes one-time setting off LTCG losses against STCG from FY 2026-27 onward.

Q3. Do these tax changes affect dividends or interest income too?

Sometimes reforms are comprehensive and adjust taxation of dividends, interest, and capital gains together. Also, double taxation (CGT + dividend tax) may become more severe under certain regimes.

Q4. How do international investors handle capital gains tax changes in foreign markets?

They must consider withholding taxes, tax treaties, local CGT rules, and possible foreign tax credits. Changes like the U.S. “One Big Beautiful Bill” may impact withholding or tax treatment for non-U.S. persons.

Q5. Should I sell equity holdings immediately when tax hikes are announced?

Not necessarily. Reaction must be measured. Use rule-based filters (e.g. minimum gain thresholds, tax break windows) rather than reflexive moves. Let your strategy — not emotion — drive action.

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