Passive Funds: Myth-Busting with India’s ETF Pioneer

The video actually opens with Vishal Jain speaking first, giving his views on the India growth story and active vs. passive investing, before the host’s introduction begins. 
Here’s the corrected conversational format of your full transcript, matching the actual flow and keeping all original meaning intact  

[Opening Visuals Montage of Vishal Jain speaking; snippets from the episode] 

Vishal Jain: 
India is doing well don’t miss out on the India growth story. 
Those active schemes that are outperforming today may not be the ones outperforming tomorrow. 
If you keep searching for the best stock, the best sector, the best fund manager, the best scheme  you’ll forget the market completely. 
You’ll be chasing things that are not in your control. 
And to get all of that right, you’d need a crystal ball! 

The only real disruption that’s happened in the mutual fund industry is the structure of ETFs nothing else comes close. 

[Music fades in – Title card: “The Future of Passive Investing | Bazaar & Beyond”] 

[Intro Segment] 

Vivek Ananth (Host): 
Hello everyone, and welcome to another episode of Bazaar & Beyond, where we deep dive into the world of finance, investing, and more  to help you make smarter investment decisions. 

I’m your host, Vivek Ananth, and joining me today is Mr. Vishal Jain, CEO of Zerodha Fund House. 

Mr. Jain has been a pioneer of passive investing in India, with a career spanning over 25 years in this space. 
He was part of the team that built India’s first ETF Nifty BeES  back in 2001, and has led the passive investing business at Benchmark Mutual Fund, Goldman Sachs AMC, and Nippon India Mutual Fund. 

Thank you, Mr. Jain, for joining us. 
Let’s start with your journey as one of the pioneers of passive investing in India and what you’re trying to achieve with Zerodha Fund House. How do you see the future of passive investing? 

Vishal Jain’s Journey & Evolution of Passive Investing 

Vishal Jain: 
Thanks, Vivek. It’s a pleasure being here. 

Passive investing in India started around 2000, when the first index fund launched. The first ETF Nifty BeES came in December 2001. 
So, we’ve had around 25 years of passive investing now. 

If I split the journey, I’d say the first phase (2000–2015) was slow. 
We were at Benchmark Mutual Fund pioneering ETFs, but the mutual fund industry itself was still developing. 
Most focus was on active funds sold through distributors while passive funds are bought, not sold. 
There was no incentive for brokers or distributors to sell them. 

Then around 2014–2015, things began to change. 
While at Goldman Sachs, we launched the CPSE ETF, India’s first government ETF for PSU disinvestment. 
That created buzz. Around the same time, EPFO started investing part of its corpus in Nifty 50 ETFs. 
That was a big trigger for institutional participation. 

Then, between 2017–2018, SEBI made two regulatory changes that completely reshaped the industry: 

• Benchmarking moved from Price Indices to Total Return Indices (TRI) meaning dividends had to be included in performance comparison. Earlier, the difference between the two  the dividend yield  was wrongly seen as alpha. 

• SEBI also categorized funds clearly defining large, mid, and small caps by rank. Once that came into effect, most active funds started showing clear underperformance versus benchmarks. 

After 2019, data made that evident and that’s when more institutional and HNI money began flowing into passive funds and ETFs. 

Then came Covid  a massive shock to markets. 
In such times, investors don’t know which stock or sector will recover, but they know the market is 25–30% down so it makes sense to just buy the market. That’s when passive investing really gained traction. 

Finally, in May 2022, SEBI released a dedicated framework for how ETFs and index funds should be managed. 
That led to higher transparency, more participation, and bigger trading volumes. 

Today, we have over 1.8 crore ETF investors in India. 
To put that in perspective the first 45 lakh investors in ETFs took 20 years. The next 45 lakh came in just 9 months last year! 
That’s the kind of growth and interest we’re now seeing. 

Vivek Ananth: 

That’s phenomenal growth! How are you planning to build on this momentum at Zerodha Fund House? 

Vishal Jain: 

Our main objective, Vivek, is simplicity. 

Even today, India’s mutual fund penetration is around 3%. That’s a huge gap. 
If we want the next 10–20 crore Indians to start investing, we need simple, low-cost, transparent products. 

At Zerodha Fund House, our goal is to help investors achieve financial goals and freedom through such simple products things they can understand easily and invest in confidently. 

Vivek Ananth: 

What structural changes does the passive ecosystem still need? 

Vishal Jain: 

The key is market-making infrastructure for ETFs. 
ETFs need liquidity providers market makers to enable smoother buy/sell operations. The system is improving, but we still have ground to cover. 

Over the next 2–3 years, with regulatory support and more players, the market-making ecosystem will deepen. That will make ETFs even more accessible and efficient for retail investors. 

Vivek Ananth: 

You’ve seen markets evolve across multiple cycles. How has investor behavior changed over the years especially towards passive investing? 

Vishal Jain: 

It’s interesting every time there’s a big correction, investors actually buy more passive products. 

We saw it in 2008–09 during the global financial crisis, and again in 2020 during Covid. 
People realize these are simple, transparent products you can own the market without worrying about stock-picking. 

Globally, the most traded stock in the world is actually not a stock it’s an ETF, SPDR (S&P 500 ETF). 
It trades more than even Tesla! 

In India too, the largest mutual fund scheme today is SBI Nifty 50 ETF, thanks to EPFO money. 
So clearly, the shift to passive investing is both global and irreversible. 

Vivek Ananth: 

Are passive funds mainly limited to large caps, or can they work in mid and small caps too? 

Vishal Jain: 

That’s a common misconception. 
If you see the latest SPIVA Report by S&P, around 90% of large-cap and 75% of mid- and small-cap active funds in India underperform their benchmarks. 

Yes, some active schemes do outperform — but not consistently. 
The fund that outperforms today isn’t the same one that does so tomorrow. 

If you keep chasing the best-performing scheme or fund manager, you’ll lose sight of the big picture. You’ll end up chasing luck, not skill and to get that timing right, you’d need a crystal ball. 

That’s why we focus on disciplined portfolio building using passive products. 
They allow investors to allocate across large, mid, small caps, gold, or debt all in line with their risk appetite and goals. 

Vivek Ananth: 

Since Zerodha only offers direct plans, does that mean investors no longer need advisors when investing in passive funds? 

Vishal Jain: 

Our goal isn’t to remove advisors it’s to make investing simple. 

When you offer something like a “Top 250 Index Fund”, even a first-time investor understands it represents India’s top 250 companies. 

We’re creating basic building blocks large-, mid-, small-cap equity funds, plus a few commodity and debt products — so people can build portfolios easily. 

For those who prefer ready-made options, we’re launching solution-oriented funds like multi-asset or target retirement funds. 
These are like “thali” options complete meals compared to à la carte choices for do-it-yourself investors. 

Vivek Ananth: 

Zerodha Fund House is a JV with Smallcase. What unique value does Smallcase bring to this partnership? 

Vishal Jain: 

Both Zerodha and Smallcase are digital-first platforms built for retail investors. 
They’ve built large-scale systems and understand user behavior deeply. 

We share that DNA. 
Passive funds are low-cost, so we’ve built a lean, tech-driven organization an internal tech backbone that automates most functions, keeping costs low. 

Even if our AUM grows 5x or 10x, we won’t need huge manpower increases. That’s what creates economies of scale and keeps our expense ratios among the lowest for investors. 

Vivek Ananth: 

Everyone’s building passive funds now. How will Zerodha Fund House differentiate itself? 

Vishal Jain: 

The differentiation is technology and investor experience. 

We’re working on a WhatsApp-based investing flow because that’s where India already is. 
People don’t want to juggle five fund apps anymore. They want convenience. 

Imagine investing in a mutual fund in just three clicks on WhatsApp. 
That’s the kind of user journey we’re building — simple, mobile-first, and future-ready. 

Over the next few months, and the next 2–3 years, you’ll see several such tech innovations from us all focused on accessibility and ease. 

Vivek Ananth: 

How much of your investor base currently comes from Zerodha’s own brokerage platform? 

Vishal Jain: 

Around 50–60% currently comes from Zerodha. 
But that’s changing fast as we grow across other digital channels. 

Asset management is built on trust. 
As long as we stay consistent and transparent, more investors even outside the Zerodha ecosystem — will start using our funds. 

Vivek Ananth: 

One cheeky question before we wrap up you used to head passive investing at Reliance Mutual Fund (now Nippon), and now Jio-BlackRock MF is entering the space. How does it feel to see a Reliance-backed AMC as a competitor? 

Vishal Jain: 

(laughs) Honestly, I’m happy! 

India has so much room to grow. 
Our mutual fund AUM-to-GDP ratio is just 17%, compared to the global average of 65% and the U.S. at 120%. 

There’s space for everyone. 
More credible players mean more awareness, more financial inclusion, and faster industry growth. 

If new entrants bring in fresh investors, it’s a win-win for the entire ecosystem. 

Vivek Ananth: 

Beautifully put. Any book or advice you’d like to leave our viewers with? 

Vishal Jain: 

Yes I recommend The Psychology of Money by Morgan Housel. 
And my simple advice: India is doing well. Don’t miss out on the India growth story. 

Keep investing regularly, maintain a good asset allocation, and stay disciplined.  

Vivek Ananth: 

Thank you, Vishal, for such an insightful conversation. 

Vishal Jain: 
Thank you, Vivek. Pleasure being here. 

[Closing Visuals] 

Vivek (voiceover): 
That was Bazaar & Beyond — exploring the future of passive investing, its challenges, and opportunities for investors. 
Stay safe and invest wisely. 

Disclaimer: 
Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.