Investor Education Must Explain Why Beating Benchmarks Is Difficult: Experts

Why Fund Choices Need to Look Beyond Fees

Investors need a clearer understanding of the difficulty of sustaining returns above a benchmark—and of how different strategies fit their goals.

The challenge is sustaining outperformance

A central message from the panel was that investors should understand how difficult it is to beat a market benchmark consistently. Hemen Bhatia, head of passives at Aditya Birla Sun Life AMC, said investor education should not stop at discussing low costs and passive investing. It should also explain that alpha—the return above a benchmark—can be temporary and does not necessarily persist.

That distinction matters when investors compare funds or judge a strategy after a period of strong performance. A recent spell of outperformance, on its own, does not establish that the same result will continue. Bhatia said investors who had tried different approaches were more likely to appreciate passive investing, suggesting that experience can shape how people weigh the appeal and limitations of active management.

Active and passive funds serve different needs

The panellists did not frame the choice between active and passive investing as a contest with one inevitable winner. Swarup Anand Mohanty, vice-chairman and chief executive of Mirae Asset Investment Managers (India), said different products could have a place as the investor base evolves. Vishal Jain, managing director and chief executive of Zerodha Mutual Fund, similarly said investors must decide which strategies belong in their portfolios and what proportion to allocate to them.

Mohanty pointed to the changing composition of India’s equity market, saying nearly 80 per cent of IPOs came from mid-cap and small-cap companies. He also noted the long-run merits of rule-based investing. These comments underline that a strategy’s suitability depends on the investor’s own choices and expectations; the discussion did not suggest that any one approach guarantees better outcomes. Jain described passive investing as something investors often adopt as their market experience develops, rather than a product that is simply sold to them.

Quant strategies face a test of adaptability

Sandeep Tandon, founder and chief investment officer of Quant Mutual Fund, argued that investment models need to respond to shifts in market conditions. He described 2012 to 2024 as a strong global bull run in which several strategies performed well, followed by two years that presented a different environment. In his view, traditional quantitative models may lose effectiveness if they cannot adjust as conditions change.

Tandon said India’s decades of historical market data could support quantitative investing, while stressing that portfolio construction should also account for individual goals, risk appetite and investment horizons. His argument adds another dimension to evaluating a fund: not just its cost or past returns, but how its approach is designed to respond to a changing market. These are considerations for investors to examine, not assurances that an adaptive strategy will outperform.

Technology could reshape fund operations

The panel also discussed artificial intelligence and the economics of managing funds. Mohanty said Mirae Asset was introducing AI agents for attribution and bias analysis, while expecting technology to have a larger effect on customer service than on fund management. His broader point was that asset managers may need to become AI-enabled as the industry’s use of technology and data analytics evolves.

Panellists also contrasted the operating models of active and passive funds. Mohanty said passive strategies do not require the same branch network as traditional active management and suggested that growing passive assets could materially change industry economics. He estimated that passive assets could reach Rs 80–85 trillion sooner than expected. Bhatia said passive strategies need fewer fund managers and analysts, making their economics dependent on scale. The comments point to a possible shift in business models, while leaving the pace of any change uncertain.

Key Highlights

• Experts said investor education should explain why sustained benchmark outperformance is difficult.
• Panellists see room for active, passive and rule-based strategies to serve different investor needs.
• Quant models may need to adapt as market conditions change; investor goals and risk appetite also matter.
• AI applications and the scale economics of passive funds could influence asset managers’ operations.

Investor Note: Compare investment strategies on their purpose, risks, costs and potential to meet your own goals—not on fees or a recent record alone. Past outperformance does not establish that a fund will continue to beat its benchmark.