Passive investing has evolved beyond traditional broad-market indices as fund houses launch specialized sectoral and thematic products. According to reports from Mint, the Nifty 50 Total Return Index (TRI) fell 3.3% in the six months to July 30, 2026, while the Nifty 500 TRI gained just 1.8%. However, several sectoral indices delivered strong returns, with Nifty Pharma TRI rising 22%, Nifty Healthcare up 20.8%, Nifty Realty gaining 15.3%, Nifty Capital Markets advancing 13%, and Nifty India Defence up 12.7% over the same period. These TRI returns capture both stock price gains and dividends, highlighting the potential of specialized sectoral exposure.
The passive sector is witnessing significant innovation with at least 4 industry-first launches in the pipeline as regulatory changes open new product avenues. According to Business Standard, Motilal Oswal's Multi-Thematic Active FoF will invest across multiple thematic equity funds, allowing investors to diversify across themes through a single scheme. DSP's Financial Services Sectoral Debt Fund will invest predominantly in debt and money market instruments issued by banks, NBFCs and other financial sector entities, making it one of the first sector-specific debt funds. AlphaGrep's Liquid Omni FoF will be the first FoF in the liquid fund space and will invest across active and passive liquid schemes. HDFC's FTSE India ETF will be among the select few schemes tracking India-focused indices by a foreign provider.
Passive sectoral or thematic funds offer investors exposure to specific sectors without fund manager risk, as explained by Mint reports. These funds track their underlying index with base expense ratios ranging from 0.14% to 0.50%, providing relatively low-cost access to sectoral themes. According to Anubhav Srivastava, partner and fund manager at Infinity Alternatives, these funds eliminate fund manager risk by simply holding the index, allowing investors to gain sector exposure without worrying about stock selection underperformance. The appeal lies in gaining exposure to an entire sector without taking fund manager risk, making these products suitable for investors seeking specific sector exposure without active management involvement.
With equities stabilising and investor sentiment improving in recent weeks, fund houses are expected to step up new fund launches in the coming months. As per Business Standard, the pipeline follows a subdued first half for new fund offers (NFOs), with active equity NFO collections falling to a six-year low in the first half of calendar year 2026 as market volatility and uncertainty weighed on investor appetite. Among the upcoming offerings, balanced hybrid funds are expected to make a comeback after remaining largely absent for nearly a decade, with ICICI Prudential Mutual Fund recently launching a scheme in the category.
According to Mint reports, these funds are not suitable for all investors, with experts recommending diversified equity funds for most investors who prefer professional fund managers to handle sector allocation decisions. For those considering sectoral exposure, experts suggest understanding how funds replicate their benchmark through tracking error and tracking difference metrics. Investors should observe fund performance over two to three years and examine how effectively the fund house manages tracking error before investing. The key is tactical allocation rather than strategic positioning, with these funds belonging in the satellite portion of a diversified portfolio rather than the core holdings. Anish Teli from QED Capital Advisors emphasizes that investors should avoid spreading sectoral allocation across too many themes, as it can dilute the impact of these funds on the overall portfolio.
