Passive fund assets could reach Rs 25 trillion by 2025, says Finity

In the last five years, the Indian passive fund assets have grown 18 times from just Rs 22,409 crore in March 2016, says the investment platform

Passive fund assets will grow by 6 times from the current levels of Rs 4 trillion to Rs 25 trillion by 2025, Finity, an investment platform has projected.

In the last five years, the Indian passive fund assets have grown 18 times from just Rs 22,409 crore in March 2016.

Underperformance of active funds, low costs and regulatory policies have led to this growth, Finity said.

As of September 2021, there were around 160 passive schemes in India with cumulative assets under management (AUM) of Rs 4.13 trillion, making them the biggest category across the equity and debt funds.

“Passive investing is emerging as an important part of investor portfolios. With the entry of fintech companies in the asset management industry, the number of passive funds that are being launched every month is at an all-time high which has resulted into healthy competition and innovation in products. We expect that the total AUM in passive assets will more than double over the next two years," said Abhilash Joseph, Business Head of Finity.  

New-age fund houses like Navi MF have filed several offers with Securities and Exchange Board of India (Sebi) for launching various passive funds. Even HDFC MF had filed nine offer documents in passive space in the first week of October.

As of March 2021, AUM of passive investments as a percentage of overall AUM of mutual fund industry in India was at 10 per cent at the end of March 2021 as compared to 2 per cent at the end of March 2016.  

Despite the AUM growth at a CAGR of more than 20 per cent over the previous five years, Indian mutual fund AUM to GDP ratio remains significantly low at 12 per cent as compared to a global average of 63 per cent.