Last Updated on Jul 30, 2024 by Anjali Chourasiya
Not every investor would like to invest time by constantly monitoring their investment portfolio. Mutual funds are one of the popular investments offering facilities for active and passive investors. Here in this article, learn about passive investors, the best mutual funds for passive investors, and the pros and cons of passive investing.
Table of Contents
Who are passive investors?
As the name suggests, the passive investor is the one who doesn’t want to play an active role in keeping track of the investments. They look for investments with a long-term horizon that can deliver decent returns. This approach is known as ‘buy and hold’ in the investment world. That means the investor buys the investment and holds it for a long time, irrespective of the market fluctuations. The investor doesn’t react to short-term movements in the market. In simple terms, passive investors follow an invest and forget approach.
Best mutual funds for passive investors
| Mutual fund name | Sub Category | AUM (Rs. in cr.) | Sharpe Ratio (%) | CAGR 5Y (%) | % Largecap Holding |
| HDFC Balanced Advantage Fund | Balanced Advantage Fund | 63,980.65 | 3.59 | 18.55 | 51.86 |
| SBI Equity Hybrid Fund | Aggressive Hybrid Fund | 61,447.93 | 1.94 | 14.37 | 56.16 |
| ICICI Pru Balanced Advantage Fund | Balanced Advantage Fund | 51,731.84 | 3.10 | 13.09 | 57.73 |
| Parag Parikh Flexi Cap Fund | Flexi Cap Fund | 48,293.88 | 3.51 | 23.93 | 55.70 |
| HDFC Flexi Cap Fund | Flexi Cap Fund | 42,270.54 | 2.68 | 19.84 | 79.70 |
| Kotak Flexicap Fund | Flexi Cap Fund | 41,371.57 | 2.07 | 16.59 | 73.13 |
| ICICI Pru Bluechip Fund | Large Cap Fund | 41,269.16 | 2.48 | 17.73 | 80.76 |
| SBI BlueChip Fund | Large Cap Fund | 40,740.72 | 2.15 | 16.82 | 81.04 |
| ICICI Pru Value Discovery Fund | Value Fund | 35,089.33 | 3.05 | 21.67 | 66.10 |
| Mirae Asset Large Cap Fund | Large Cap Fund | 34,376.99 | 1.58 | 15.77 | 80.96 |
Note: The information is dated 1st January 2024. The parameters used to filter the list of mutual funds for passive investors on Tickertape are:
- Category – Equity
- Plan – Growth
- AUM – From Rs. 5,000 (sorted from highest to lowest)
- Sharpe ratio is set from 0
- 5yr CAGR
- Large-cap holdings 40% and above
About best mutual funds for passive investors
Parag Parikh Flexi Cap Fund
This flexi cap fund has outperformed other funds in the same category. With a less expense ratio, this fund is suitable for long-term investors. The minimum investment in this fund starts from Rs. 1,000.
HDFC Flexi Cap Fund
This flexi-cap mutual fund has an expense ratio of 0.92%, which implies better returns over the long-term. Moreover, in the past year, the fund has witnessed significant growth as the fund has grown by 30.86%. The minimum investment in this fund is Rs. 100.
Kotak Flexicap Fund
This flexi-cap fund has less expense ratio which implies that this fund has managed to give better returns over the long-term. Moreover, while comparing to fixed deposits, this flexi cap fund has been able to generate better price return than bank fixed deposits with 25.02% returns.
ICICI Pru Bluechip Fund
ICICI Prudential Mutual Fund launched a bluechip fund on 23rd May 2008. The minimum investment required for the ICICI Pru Bluechip Fund is Rs. 100. This large-cap fund has witnessed a growth of 27.48% in the past year.
SBI BlueChip Fund
This large-cap mutual fund has a minimum investment of Rs. 5,000. Moreover, upon comparing the life CAGR, this large-cap fund has outperformed its peers.
ICICI Pru Value Discovery Fund
This value fund has witnessed the growth of 27.48% in the past year, outperforming fixed deposits returns. With a minimal expense ratio of 1.07%, this value mutual fund is suitable for long-term investment. You can start investing in this fund with the minimum amount of Rs. 1,000.
Mirae Asset Large Cap Fund
Over the course of the last three years, this large-cap mutual fund has been able to generate better price returns than bank fixed deposits with 19.09% growth. The minimum investment in this large-cap fund is Rs. 5,000.
Taxation on Mutual Funds for Passive Investors as per the 2024 Budget
The Union Budget 2024 has introduced significant changes to the taxation of equity mutual funds, simplifying the tax structure while altering rates and benefits. Here is a detailed breakdown of the new tax rules:
Short-Term Capital Gains (STCG)
If you hold equity mutual funds for less than a year, the gains from these investments are classified as short-term capital gains. According to the new budget, these gains are now taxed at a rate of 20%, which has been increased from the previous rate of 15%.
Long-Term Capital Gains (LTCG)
For equity mutual funds held for more than a year, the gains are considered long-term capital gains. The key points to note under the new budget are:
- Tax-Free Limit: Gains up to Rs. 1.25 lakh in a financial year remain tax-free. This limit has been increased from the previous threshold of Rs. 1 lakh.
- Tax Rate: Any gains above Rs. 1.25 lakh are taxed at a flat rate of 12.5%. It was previously taxed at 10%.
- Indexation: It’s important to note that the benefit of indexation, which previously allowed investors to adjust the purchase price of their assets for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation is a method used to adjust the purchase price of an asset (like property or gold) for inflation over the years. This adjusted price is then used to calculate capital gains. Previously, long-term capital gains from selling property, gold, or other unlisted assets were taxed at 20%, but you could use indexation to reduce your taxable profit. The new rule simplifies the tax structure by setting a flat 12.5% tax rate for all long-term capital gains. However, it removes the indexation benefit.
Summary
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
No Indexation Benefit: This change affects the overall tax liability, potentially increasing it for long-term investors.
Advantages of buy and hold investing
- Unlike active investments, you don’t have to keep track of the market in the buy and hold approach.
- The investment is bound by strong analysis as it is a one-time investment.
- In this, the investor is taxed as per the long-term capital gains.
- Trading involves several additional costs. When you execute trading frequently, these transaction costs can cost you more. But in buy and hold investing, as the investment is for the long-term, you can save on the transaction costs.
Disadvantages of buy and hold investing
Though there are many advantages to the buy and hold approach, there are a few cons, like,
- Your money is locked. If you have any financial emergency or find any better investment, you can’t take advantage of the funds.
- At times, investors make good profits in active investing. Passive investors can miss out on that.
- Though buy and hold investing seems simple and safe, it is to be noted that investment still carries an amount of risk. There is no guarantee that your investment will perform well in the long term.
Conclusion
Overall, the buy-and-hold investment strategy is one of the popular approaches for passive investors. An investor need not worry about the market. However, being a long-term investment with a good amount of money and time, an investor needs to be careful and do their research before investing.
FAQs
1. What is the minimum investment period for long-term investment?
The investments with a horizon of 5 yrs or more are considered long-term investments.Â
2. What is the tax levied on long-term capital gains on mutual funds?Â
The tax levied on long-term capital gains on mutual funds depends on the types of mutual funds.Â
– Equity funds (more than 12 months) are taxed at 10% on the amount more than Rs. 1 lakh without indexation.Â
– Debt funds (more than 36 months) are taxed at 20% with indexation benefit.
– Unlisted equity funds (more than 36 months) are taxed at 20% with indexation benefit.
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
- Top 10 High-Return Mutual Funds in India (2024) - Nov 19, 2024
- Where to Invest Money in India? 15 Investment Options to Explore - Nov 18, 2024
- Best Long Term Stocks to Buy in NSE India for 2024 - Nov 18, 2024
