Things to keep in mind before investing in a passive fund

With the growing popularity of equity investing, mutual funds are becoming a large part of investors' long-term investments. Within mutual funds - Index funds are getting increasing popularity over the last 1-2 years. Passive funds that consist of index funds and ETFs are quite the rage in the US are now getting similar traction in India.

What are passive funds? Unlike most mutual funds, where a fund manager is responsible for making investments in underlying stocks, index funds don't require a fund manager. Popular indexes such as Nifty, Sensex and others are replicated via passive funds. With a growing number of mutual funds in India - Index funds offer a simple yet effective solution for long-term investing. Passive funds are also cheaper than traditional funds - making it lighter on the wallet for all investors.

With the increasing popularity of index funds - investors must figure out how to select suitable index funds today. Even though there are limited options - similarity in the funds across fund houses can be confusing. What about sector, thematic, international index funds? What about ETFs?