Passive funds: Kotak MF suggests where to put your money across market caps, commodities and sectors

With the Nifty 50 trading below its peak and Indian equities underperforming several global markets, Kotak Mutual Fund’s August 2026 “D-Kode” report has highlighted the market correction as an opportunity to add exposure to select passive investments.

Passive funds are meant to track an underlying index or commodity. These include index funds and exchange-traded funds (ETFs), allowing investors to gain exposure to a basket of securities rather than selecting individual stocks.

Here are the market indices, commodities, and sectors investors can look at now.

Which market indices can investors choose?

For market-cap exposure, the report suggested the Nifty 50 and Nifty Next 50 indices.

The Nifty 50 tracks 50 of India’s largest companies across sectors. The Nifty Next 50 includes the next 50 companies in the Nifty 100, excluding those in the Nifty 50.

Satish Dondapati, Fund Manager ETF, Kotak Asset Management Company, said, “These indices provide exposure to some of India’s leading companies across sectors. A correction can be a good opportunity to accumulate quality companies at relatively better valuations”.

As per the report, the Nifty 50 Index is trading around its long-term average, while small- and mid-cap indices are trading at a premium. The Nifty 50’s average price-to-earnings (P/E) ratio is 18.7 times, while it is currently trading at 18.6 times.

However, the Nifty Midcap 100 Index has an average P/E of 24 times and is trading at 27.8 times. The smallcap segment has an average P/E of 17.5 times, against a current P/E of 23.3 times.

The report also noted that the MSCI India Index fell by 6.7% in the last one year, while the US and other markets such as Japan, Korea and Taiwan performed better.

Additionally, under the smart-beta factor strategy, the report suggested betting on the Nifty 100 Low Volatility 30 Index.

Dondapati said the index can be useful for investors who want to remain invested in equities while preferring relatively lower volatility during uncertain market conditions.

Which commodity can investors look at?

Under commodities, investors can look at gold. It delivered a 63% return between January and December 2025 but declined 7% between January and July 2026.

“Gold provides diversification and can act as a hedge during periods of market uncertainty, geopolitical risks, and currency movements. A correction can also be a good time to rebalance gold allocation,” Dondapati noted.

Which sectors and themes can investors consider?

Among sectors, the Nifty Bank Index can be considered. It fell 6.2% between 24 February and 31 July 2026, following the onset of the US-Iran war, according to the report.

“Banks are closely linked to India’s economic and credit growth. A market correction can provide an opportunity to accumulate quality banking stocks at more attractive valuations. We remain positive on the banking sector, given its importance to economic growth and the long-term credit growth potential,” he explained.

The report also highlighted the Nifty Consumption Index as a theme to watch.

“India’s consumption story is supported by rising incomes, urbanisation and higher consumer spending. A market correction can provide an opportunity to invest in good consumption companies at more attractive valuations. We remain positive on the consumption theme over the medium to long term, given its strong growth potential,” Dondapati added.

How can investors allocate them in their portfolios?

For market cap, gold and sector/theme exposure, Dondapati said, “The allocation can be different for each investor depending on their risk appetite, investment horizon and financial goals. Hence, there is no single ideal allocation that works for everyone”.

He added that these funds are generally meant for long-term investment, preferably for at least 3–5 years. Staying invested for longer helps investors ride out short-term market volatility. Investors can also combine SIPs with staggered lump-sum investments based on their cash flows and risk appetite.