The Delay in Index Decisions
One of the biggest problems with passive investing is that index changes don’t happen fast enough. Most major indices like the Nifty are rebalanced only twice a year. That means it can take several months before a good stock is added or a bad stock is removed. In a fast-moving market, six months can make a huge difference. A stock might already double or crash by the time the index committee makes a decision.
Missed the Rally in Zomato
Take the example of Zomato. The stock started rising from around ₹50 in March 2023 and went all the way to ₹300 by the end of 2024—a massive 6x move. But Nifty decided to include Zomato in the index only from April 1, 2025. By that time, the stock had already fallen by 33% from its peak. So the entire rally was missed by the index, and now the stock’s best days may be over. This shows how passive investing often comes too late to the party.
The Fall of Yes Bank
On the flip side, let’s talk about Yes Bank. Back in 2018, Yes Bank was still part of the Nifty 50 when it started crashing from ₹400. Over the next year, it collapsed to nearly ₹20, yet it continued to be part of the index. Investors who held Nifty ETFs or passive mutual funds were forced to hold this sinking ship simply because it was part of the index. The committee removed it only after most of the damage was done.
Momentum Indices Face the Same Problem
Even newer passive strategies like momentum-based indices face a similar issue. They also rebalance every six months, and that means if a stock starts falling, the fund can’t exit until the next rebalance. This results in holding on to losers far too long and missing the chance to protect capital.
Why Active Still Matters
This is where active investing has an edge. Active strategies can spot early signals, enter winning stocks sooner, and exit weak ones faster. You don’t need to blindly trust an index committee’s timing. With a little effort and the right system, you can reduce your risk and maybe even do better than the index.
In The Momentum Podcast this week
From F&O failure to momentum master—Rachit’s journey is a must-watch!
Learn how he escaped a 30% crash with just 4% drawdown and built a stress-free investing strategy.
Catch the full story now!
