What is passive investing?
A stock index is a list of selected shares whose combined price shows whether the market is going up or down. Examples are the DSE’s main index, the DSEX, and the DS30 of 30 large companies, both running since January 2013.
Passive investing means buying the shares in an index in the same proportions and holding them, usually through an index fund or an index-tracking ETF. The fund manager does not judge which shares are good, but simply follows the index. The opposite is active investing, where a manager, or you yourself, picks shares hoping to beat the market.
Imagine that in a fantasy cricket league, instead of trying to pick the best eleven, you take the average performance of every player in the league. You will never top the table, but you will never be at the bottom either. And at the end of the season, most of those who spent points changing their team every week finish below you. That is the idea behind passive investing.
Why it matters to an investor
- Low cost: no research to pick shares and little trading, so fees are usually lower than for active funds. Over long periods the difference becomes large.
- Easy diversification: one fund holds many companies, so trouble at one company does not put all your money at risk.
- Beating the market is hard: most experienced professional managers fail to beat the index over long periods.
- Less emotion: there is no daily pressure to decide what to buy or sell.
How active funds have done
S&P Dow Jones Indices publishes a report called SPIVA every six months, comparing active funds with their matching index. In 2025, 79% of active US large-company funds returned less than the S&P 500 index, up from 65% in 2024. Over the five years to 2025, the figure was 89%.
The longer the period, the larger the share of funds that usually fall short of their index. The reason is simple: all investors together earn the market’s return on average, and then active funds’ higher fees and trading costs come off. These are mainly foreign-market figures, though; Bangladesh’s market is small and results here may differ.
Source: S&P Dow Jones Indices, SPIVA, 2026
See the numbers as a table
| Funds that trailed | |
|---|---|
| In 2024 | 65% |
| In 2025 | 79% |
| Over five years | 89% |
The situation in Bangladesh
Bangladesh created rules for ETFs in 2017, but progress has been very slow. A 2021 analysis noted that no ETF had yet been launched and there were no specific rules for index funds. The first ETF was approved in 2023, but as of June 2024 it had still not launched because of weak investor interest.
So the chance to “buy the index” directly in Bangladesh is still limited. As new funds launch, check the latest information from BSEC and the stock exchanges. Bangladeshi investors can still use the core ideas behind passive investing: keep costs low, spread money across many companies and avoid frequent trading.
The limits of passive investing
- Indices fall too: passive does not mean safe. In the first three months of 2020 the DSEX fell about 19%.
- You own whatever is in the index: even if a sector or company has become overpriced, the index keeps holding it.
- In a small or concentrated market an index can depend heavily on a few large companies, so it may be less diversified than it looks.
Worked example
- Say two funds invest in the same market and both earn 10% a year on average before fees. You invest Tk 1,00,000 and leave it for 20 years.
- Fund A charges 0.5% a year: net return 9.5%. After 20 years: about Tk 6,14,000.
- Fund B charges 2.5% a year: net return 7.5%. After 20 years: about Tk 4,25,000.
Result: just 2% a year more in costs, but after 20 years the gap is about Tk 1,89,000, nearly twice your original money. Just to keep level, the higher-fee fund must earn at least 2% a year more before fees. The numbers are only an example.
Common mistakes
- Thinking passive means “can’t lose”. When the index falls, an index fund falls too.
- Assuming last year’s top active fund will stay on top.
- Ignoring fees because the number looks small. Over long periods fees can eat a large part of the return.
- Buying an index fund and selling as soon as the market falls. The passive approach works by holding for the long term.
Beating the market is very hard, but keeping costs low is in your hands: passive investing means taking the whole market’s return, risks included, at low cost.