At a time when markets are being driven by global events rather than core fundamentals, investors should focus on blending active and passive strategies based on goals, risk tolerance, and time horizon, ensuring portfolios remain balanced, cost-efficient, and resilient across market cycles for expected long-term wealth creation, according to a release by ICRA Analytics.
From a fund management perspective, passive strategies are structurally competitive, usually in large, well-researched, moderately stable markets. Active management adds measurable value in an environment where the market is comparatively volatile, where the impact of sensitive factors is high, and information velocity is heightened, the release further said.
Investors can use both vehicles to navigate volatile situations and achieve their financial goals.
Also Read |11 equity mutual funds with over Rs 1,000 NAV offer upto 24% CAGR since their inception
In an environment marked by elevated volatility due to geopolitical tensions, commodity prices and currency fluctuations, mutual fund investors must take primary responsibility for their own investment decisions and exercise heightened caution.
While market movements are often driven by external and unpredictable factors beyond any participant’s control, investors should remain mindful that mutual funds are subject to market risks and short-term fluctuations are inevitable. It is therefore essential for investors to align investments with their risk appetite, time horizon, and financial goals, avoid reactive decision-making during periods of sharp market swings, and rely on disciplined asset allocation rather than short-term market noise.
“Amid heightened market volatility, there is no one-size-fits-all answer, and investors should avoid viewing the choice between active and passive funds as an either-or decision. Expertise, information, analysis, portfolio optimisation and long and short-term return expectation goals shall govern the choice. The allocation between active and passive funds shall be based on analysis of the statistical outcome of each strategy vis-à-vis investment objectives,” Ashwini Kumar, Senior Vice President and Head, Market Data, ICRA Analytics, said.
Active funds can add value during volatile phases by dynamically managing sector exposure, avoiding overvalued stocks, and taking advantage of market dislocations, provided the fund manager has a consistent track record and a disciplined investment process.
On the other hand, passive funds offer low-cost, diversified market exposure and help investors stay invested without the risk of fund manager underperformance.
“However, the key requirement would be experience, in-depth research and expertise. This can be particularly reassuring when markets are driven by global events rather than fundamentals. In such an environment, investors should focus less on short-term market timing and more on blending active and passive strategies based on goals, risk tolerance, and time horizon, ensuring portfolios remain balanced, cost-efficient, and resilient across market cycles for expected long-term wealth creation,” Kumar pointed out.
Also Read | How your mutual fund SIP can help you create Rs 7 crore corpus in 15 years
A look at the performance of passive and active funds can be analysed from the table below. ICRA Analytics has conducted a study based on its in-house methodology for comparing the strategies for insight.
Over the past one year, Indian equity markets have been notably influenced by multiple geopolitical tensions, leading to periodic volatility rather than sustained declines. US-China trade tensions and tariff rhetoric caused risk-off sentiment globally, leading to foreign portfolio investor (FPI) outflows from emerging markets like India during episodic spikes, which increased market volatility.
The ongoing Russia-Ukraine conflict has created uncertainty around global energy, fertiliser, and commodity markets, indirectly affecting Indian sectors such as chemicals, FMCG, and autos through higher input costs and supply chain risks.
Escalating Israel-Iran tensions and disruptions around critical oil supply routes sparked further pressure on both fixed income and equity markets, leading to short-term net selling in Indian equities during March 2026, driven by worries over India’s oil import dependence, inflation outlook, and currency stability. The bond market also witnessed hardening of yields across the curve.
Also Read | Defence mutual funds surge up to 25% in a month. Should you invest now or wait for a correction?
The combination of such geopolitical disruptions has also led to volatility in the performance of both active and passive funds. A look at the impact can be gauged from the table below.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle
