A first: Surge in passive MF folio steals a march on active equity

Gold and silver ETFs alone add nearly 1 million accounts in September

Net account additions in passive mutual fund (MF) schemes overtook those in active equity funds for the first time, in September, as investors piled into gold and silver exchange-traded funds (ETFs) amid a sharp rally in precious metals.

 

Passive schemes — including index funds and ETFs — recorded 1.2 million new accounts during the month. When fund-of-fund (FoF) schemes are included, total additions rise to 2.1 million.

 

By contrast, active equity schemes saw 1.4 million new accounts opened in September.

 

Traditionally, most new mutual fund investors have favoured active equity schemes, which have generally outperformed other categories over the long term.  Higher distributor commissions on active products have reinforced their dominance, with intermediaries often steering clients towards such schemes. 

 

Active equity funds currently account for  175 million active accounts, or about 70 per cent of the total 252 million mutual fund folios.

 

Last month’s shift was driven largely by a surge of new investors in gold and silver ETFs, seeking to capitalise on the rally in precious metal prices. 

 

Gold and silver ETFs alone added 1 million accounts in September. Although data on gold and silver FoFs is not yet available, these funds are also thought to have drawn a record number of new investors.

 

“The increase in passive folios is largely attributable to the sudden rise in gold and silver folios, following the stellar performance of precious metals in recent months,” said Sunil Subramaniam, founder and chief executive of Sense and Simplicity.

 

The jump in investor activity translated into record inflows for metal-backed ETFs. Gold ETFs drew ₹8,151 crore in September, up from ₹2,190 crore the previous month. Silver ETF inflows trebled to ₹5,342 crore.

 

“The renewed interest in these metal-based passive options follows a sharp rally in prices, along with the convenience offered by ETFs and FoFs, which allow participation through demat or physical forms without the hassle of maintaining a commodities trading account. Seasonal and festival buying, traditionally seen as auspicious, has further boosted retail participation,” said Nirav Karkera, head of research at Fisdom.

 

The rally and inflows pushed the combined assets under management of gold and silver ETFs beyond ₹1 trillion in September.

 

Passive schemes, which have seen growing investor participation in recent years, are expected to attract wider adoption if the commodity rally continues, analysts said. Equity ETFs and index funds have also gained traction over the past two years, as fund houses increasingly turn to passive products to offer investors differentiated products.