Active investing vs Passive investing

This research offers a detailed comparative analysis of active and passive investment strategies within three major sectors of the Indian equity market — Pharmaceuticals, FMCG (Fast-Moving Consumer Goods), and Banking. Using quantitative methods and secondary data from 2023 to 2025, the study evaluates mutual fund and ETF performance based on financial metrics such as CAGR, Sharpe Ratio, Treynor Ratio, Standard Deviation, Beta, Alpha, and Tracking Error. Adopting a descriptive-comparative design, the paper examines how risk, return, and cost differentials shape investment outcomes, aiming to guide both investors and policymakers in choosing optimal strategies suited to specific sectors.

In the Pharma sector, passive funds such as the Nippon India Nifty Pharma ETF outperformed active funds by capturing sector-wide growth tailwinds linked to healthcare demand and post-pandemic recovery. These funds delivered superior risk-adjusted returns and lower volatility while maintaining strong benchmark tracking. Conversely, active funds struggled to generate positive alpha despite higher risk exposure, suggesting that broad-based sector performance diluted the benefits of stock-picking.

The FMCG sector presented a more balanced outcome. While active funds slightly outperformed in terms of raw returns, passive funds demonstrated better risk-adjusted efficiency and cost-effectiveness. Given the sector’s inherently stable and low-volatility nature, passive strategies proved more suitable, leveraging consistent consumption trends without incurring high management fees.

Overall, the research underscores that in India’s evolving financial landscape, passive investment strategies increasingly offer competitive or superior performance relative to active management — particularly in efficient or broad-growth sectors. The findings suggest that investors seeking sustainable, long-term wealth creation may benefit from passive exposure, while active management retains limited advantages in niche or high-volatility sectors where alpha generation remains feasible.