Passive funds hog limelight
New Delhi: Passive funds have gained traction among investors in India in the last few years, capturing a market share of over 17 per cent of assets under management (AUM) in 2023 from 1.4 per cent in 2015, according to a study.
A passive fund is an investment vehicle that tracks a market index or a specific market segment. These funds include passive index funds, Exchange Traded Funds (ETFs), and Fund of Funds investing in ETFs. According to the study by Motilal Oswal Asset Management Company, 61 per cent of investors who participated in the study have invested in at least one passive fund and 53 per cent of respondents increased their allocation to passive funds in the last 12 months. Low-cost nature of passive funds has been cited as the biggest reason by investors for opting for such funds, followed by simplicity of these funds and market returns. The study was conducted among more than 2,000 investors participating from across the country.
“At the end of FY-2018, the AUM of all passive funds put together stood at around Rs83,000 crore. It has grown to more than Rs7 lakh crore as of Mar-2023, rising 8.5 times in just 5 years at a compound annual growth rate (CAGR) of 54 per cent,” the study mentioned.
Investors seem to have a preference between Index Funds and ETFs with 87 percent of respondents investing via Index Funds as compared to 41 per cent investing through ETFs. Also, more than 75 per cent of respondents said that they preferred to invest regularly every month using systematic investment plans (SIPs), while only 42 per cent said that they leaned towards lumpsum investment. When it comes to investor preferences in terms of allocation, the study revealed that nearly half of those investing in passive funds allocate 10-30 per cent of their portfolio to passive funds. About 15 per cent of respondents mentioned that they have allocated 31-50 per cent in passive funds, while 12 per cent of respondents allocated more than 50 per cent of their portfolio in passive funds On the other hand, 28 per cent of investors participating in the study have a less than 10 per cent allocation to passive funds.
