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As the popularity of passives increases, their role is becoming more and more important in a well-balanced portfolio. But how do you construct a portfolio using only passives? At the recently concluded Cafemutual Passives Conference 2025, Chintan Haria, Principal – Investment Strategy, ICICI Pru MF shared tips on how distributors can make a low-cost client portfolio using only passives.
Advantages of a passives only portfolio
Chintan explains that a wide range of passive products gives investors and distributors ample options to build a passives only portfolio. He adds that there are new sectors and themes like oil and gas which are being added to the passives products which will open new avenues for investment. He also feels that a big advantage of a passives only portfolio is that no matter which product you choose, it is going to be low cost.
While listing benefits of investing in passives, Chintan also warns distributors that even in passives, it is important for an MFD to control his and his client’s emotions which determines the returns on investment.
Selecting the right starting point
While explaining some of the important fundamentals of passive investing, Chintan explains that it is very difficult for any fund to beat a broad base benchmark like BSE500 and hence, a multi-cap index fund can be a good and simple starting point for any passive portfolio.
Core portfolio
For equity part of the portfolio, he recommends smart beta index funds in small and mid-cap segments. He adds that if investment is made at the right time during a rally in small and mid-cap segments at low valuations, smart beta index funds benchmarked against the broad-scale small and mid-cap segments can outperform many actively managed funds in this segment.
He says that this is because index funds are able to invest in companies which active funds may not be able to. However, he also warns that these funds have a bigger downside during market corrections compared to active funds due to absence of any large cap exposure.
He picks smart beta momentum FoFs as a good option for SIP investment, especially for aggressive investors. In order to create alpha, Chintan thinks that it is essential for a portfolio to have sectoral passives. He also states the advantage of picking sectors with low valuations and says that even in passive investment, some of the principles of active funds apply. He suggests MFDs that if they want to pick sectors with high valuation, then it is advisable to select sectors which have not achieved their peak at the time of investment. He also recommends a thematic fund of funds for tax efficient investment.
Gold and silver
Gold has done its bit in terms of its status as a safe haven asset in the recent years and in the future, it may consolidate. MFDs can allocate about 5-10% of their portfolio in gold, preferably in SIP.
Silver has been underperforming in the last four years. This may be an appropriate time to invest in silver as it is likely to outperform gold following its underperformance. Its use in new age solar panels by modern businesses also makes it a good investment from a long-term perspective.
He asks MFDs to invest in passives with a long-term horizon in mind.
What value does an ETF add?
While answering a question about the benefits of ETFs compared to index funds, Chintan points to the fact that ETFs allows participation of investors during market hours which an index fund does not provide. This can become very important during days when markets are more volatile.
Watch the complete session by visitng this link
