Cost-Efficient Investing: Why Lower Expense Ratios Could Be One of the Key Trends to Track in 2026

Today’s investors are far more “cost-conscious” than before. Yes, many now prefer passive investment schemes that charge a lower expense ratio compared to actively managed funds. 

What does the trend say? As per AMFI, net inflows into passive funds increased from ₹42,894 crore in FY24 to ₹68,227 crore in FY25. At the same time, the “number of folios” in passive schemes (including index funds and ETFs) surged 48.3% to 4,14,72,421 folios in FY25. (Source: AMFI Annual Report FY25)

This shows that more investors are now choosing low-cost investment options. But what are these schemes? They are “passive funds”, which aims to replicate a specific market index rather than outperform it. This keeps research & active fund management costs relatively low. 

In 2026, for example, investors seeking exposure to the  private sector bank may consider a Nifty private bank Index Funds/ETFs that tracks the Nifty Private Bank Index. Such Index Funds/ETFs are designed to mirror the performance of leading private sector banks while maintaining minimal expense ratios.

Want that banking exposure in 2026? Read this article to learn what private bank Index Funds/ ETFs are, how they keep costs low, and some pros and cons of investing in such schemes. Lastly, you will know about the Tata Nifty Private Bank ETF offered by Tata Mutual Fund™. 

The Nifty Private Bank Index Funds/ ETFs is a passive mutual fund that tracks the Nifty Private Bank Index. This index:

• Reflects the performance of private sector banks in India. 

• Follows a “free-float market capitalisation” methodology.

• Is rebalanced semi-annually.

A Nifty private bank Index Funds/ ETFs invests in the same banks in the same proportion as the index. The objective is “not to outperform” the market index but to replicate the index’s performance, subject to tracking error. 

As an ETF, it is listed & traded on the stock exchange (just like a share) and offers liquidity throughout the market hours. 

For those unaware, an expense ratio is the annual fee that a mutual fund charges to manage your investment. It is expressed as a percentage of your total invested amount.

Now, realise that a Index Funds/ ETFs is “passively managed” and does not require:

• A large research team to analyse and pick stocks

• Frequent buying and selling (active trading)

• Complex investment strategies

Additionally, it follows a “rule-based” approach. The portfolio only changes semi-annually when the index itself is rebalanced. In contrast, active mutual funds involve:

• Continuous research

• Stock selection

• Portfolio reshuffling

• Fund manager decision-making

All of this increases operational and management costs, which are passed on to investors through a higher expense ratio. 

As per an RBI report, the Return on Assets (RoA) of private sector banks improved from around 1.2%1.4% during 2021–2022 to about 1.6% in September 2025. This is higher than public sector banks, whose RoA rose to about 1.1% by September 2025. 

Additionally, the Return on Equity (RoE) of private sector banks peaked near 15% in March 2024 and remained above 13% in September 2025. What do these numbers indicate? Private sector banks are generating comparatively better returns on both assets and shareholder capital. (Source: Trends and Progress of Banking In India 2024-25, by RBI)

Want to get potential benefit from this private sector banks? A Nifty Private Bank Index Funds/ ETFs allows you to participate in this theme by giving you direct exposure to private sector banks in India. Additionally, some more benefits you may realise are:

1. Diversification Within the Sector

When you invest in a single private bank stock, you are exposed to several company-specific risks, such as:

• Management changes

• Regulatory penalties

• Unexpected defaults/ NPAs

Now, a Nifty Private Bank Index Funds/ ETFs reduces this risk by holding multiple private banking stocks in one index. Even if one private bank underperforms, the impact may be balanced by the performance of others in the index.
 

2. Ease of Buying and Selling on the Exchange

A Nifty Private Bank ETFs is listed and traded on the stock exchange like a regular share. You can buy or sell it during market hours at prevailing market prices. As an investor, you get instant entry and exit options without waiting for end-of-day NAV calculations (as is the case with traditional mutual funds). 

A Nifty Private Bank Index Funds/ ETFs exposes you to “sector concentration risk” as it invests only in private sector banks within the banking & financial sector. The NAV of the scheme may decline if the sector faces challenges such as:

• Rising loan defaults

• Tighter regulations from the central bank

• Slower credit growth

   

Additionally, some more disadvantages you must be aware of are:
 

1. Exposure to Economic Cycles

Usually, when economic growth slows (recessionary phases):

• Businesses may borrow less and

• Individuals could struggle to repay loans

The impact? This may increase non-performing assets (NPAs) and reduce bank profits. As a result, during periods of economic stress, banking sector may see sharper corrections compared to defensive sectors. 

Now, since these Index Funds/ETFs tracks only private sector banks, any decline in their share prices may reduce the NAV of the fund. 

2. Limited Diversification Across Banking Segments

Although the Nifty Private Bank Index holds stocks of multiple private banks, it does not include:

• Public sector banks (PSBs)

• Small finance banks (SFBs)

• Non-banking financial companies (NBFCs)

Each of these segments responds differently to market conditions. If public sector banks or other financial institutions outperform private banks in a particular cycle, investors in this funds may not benefit from the trend.

3. Sensitivity to Interest Rate Changes

Bank profitability is closely tied to changes in interest rates. Let’s see how:

The Tata Nifty Private Bank ETF is an open-ended exchange-traded fund replicating/ tracking - Nifty Private Bank Index. The investment objective of the scheme is to provide returns that are closely correspond to the total returns of the securities as represented by the Nifty Private Bank index, subject to tracking error. 

However, there is no assurance or guarantee that the investment objective of the scheme will be achieved. 
 

For more clarity, let’s check out some of its key features and asset allocation patterns:

How Will the Scheme Allocate Its Assets?

Permissible Investments and Restrictions (“Indicative” and as per SEBI Guidelines)

So now you know how to do “cost-efficient investing” in 2026. Passive funds or Index Funds/ETFs are financial products that charge a low expense ratio as compared to actively managed funds. 

One such product is the Nifty Private Bank Index Funds/ ETFs. This financial product tracks the Nifty Private Bank Index and holds the same companies in the same proportion. It offers “targeted exposure” to private sector banks without the need to select individual stocks.

However, this Index Funds/ ETFs also carries “concentration risk” as it invests only  in private sector banks. Economic slowdowns, rising NPAs, or unfavorable regulatory changes may decrease the funds NAV. 

The views mentioned above are for information & educational purposes only and do not construe to be any investment, legal, or taxation advice. Investors must do their own research before investing. The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. Any action taken by you on the basis of the information contained herein is your responsibility alone, and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. There are no guaranteed or assured returns under any of the schemes of Tata Mutual Fund.