 "Mutual Funds")
The investment landscape in India is evolving rapidly, more than 80 per cent of investors planning to hold their investments for more than 3 years, while 16 per cent plan to hold for 1-3 years. Only 3 per cent are looking to liquidate their investments in less than a year, revealed a survey conducted by Motilal Oswal Asset Management Company ( MOAMC).
The survey revealed that passive funds have taken centre-stage in India over the last few years, gaining a market share from 1.4% of AUM in 2015 to over 17% in 2023.
What are passive funds?
What are passive funds?
Passive funds consistently track a market index for gaining maximum returns from the fund. The portfolio of a passive fund replicates a market index like Nifty, Sensex, etc. The securities and the proportion of investment in each is the same as the index that the fund tracks.
Passive investments are often low-cost as compared to active ones since these require minimal management fees or frequent changes in the portfolio.
Assets under management of Passive Funds has grown 38 times over the last 8 years, from Rs 20,000 crore in 2015 to Rs 7.6 lakh crore today.
In 2018, passive funds made up 38% of large cap Equity AUM. Today, they account for more than 60%
Assets under management of Passive Funds has grown 38 times over the last 8 years, from Rs 20,000 crore in 2015 to Rs 7.6 lakh crore today.
In 2018, passive funds made up 38% of large cap Equity AUM. Today, they account for more than 60%
The survey findings point out the that 57 per cent of respondents prefer these funds due to their low-cost nature, followed by 56 per cent of respondents who feel that the simplicity of these funds is what pulls them to invest in them, and more than 54 per cent investors do so for the fact that they tend to deliver market returns.
61% of the respondents have invested in at least one passive fund and 53% of respondents increased their allocation to passive funds in the last year.
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The survey was conducted with more than 2,000 investors participating from across the country.
Some of the common passive funds in India are as follows
Index Funds
Index Funds are passive funds that construct the investment portfolio using a market index as reference. An index fund’s performance therefore depends on the performance of the chosen index.
ETFs
ETFs or Exchange-Traded Funds are listed and traded on stock exchanges, just like shares. These funds pool money from investors and invest in diversified securities including equities, bonds, commodities, etc while tracking an underlying index.
Fund of Funds
Fund of funds invest in other mutual funds. Here, the fund manager is responsible for a portfolio of mutual funds that is designed to match the investor profile.
Smart Beta
Smart beta funds combine the benefits of passively managed funds with active investment selection based on certain criteria.
Affinity For Index Funds
According to the findings of the survey, investors prefer Index Funds & ETFs the most. 87 per cent of respondents investing via Index Funds vs just 41% investing via ETFs.
According to the fund house, this is because ETFs are bought and sold on the stock exchanges and require the investor to have a demat account. On the other hand, investing in Index Funds has no such requirement and is comparatively straightforward similar to any other mutual fund transaction.
"“Passive funds are widely popular in the U.S. and have over 50% market share. We have started seeing similar trends in India over the last few years as well," said Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company
"“Passive funds are widely popular in the U.S. and have over 50% market share. We have started seeing similar trends in India over the last few years as well," said Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company
Investors Prefer Sips over Lumpsums, Social Media Over News Outlets
More than 75% of respondents said that they preferred to invest regularly every month using SIPs, while only 42% said that they leaned towards Lumpsum investment.
The preference for SIPs was equally strong among those who invest in passive funds and those who do not. "This universal preference for SIPs shows that they are simple, yet very effective in long-term wealth creation. The more disciplined approach to investing has also proven to be a great way to tide over market volatility, allowing investors to cut through the noise," noted the report.
As of March-2023, monthly SIP inflows crossed the Rs 14,000 crore mark for the first time, staying above the Rs 10,000 crore mark for 19 months straight.
The survey also reveals that more than 60% of respondents get information on markets and investments from Social Media platforms like Twitter, Instagram, etc.
On the other hand, only around 26% follow traditional news/media outlets for information related to investing. There was a higher preference for social media in those that do not invest in passive funds, while the passive fund investors turned more towards newsletters and blogs online.
How do passive funds work?
Passive or ‘tracker’ funds aim to deliver returns that are in line with the market. "They don’t aim to outperform the market or index. The fund manager’s role in passive funds is also limited to tracking the index and he/she does not have to actively select securities for investment, since the fund composition is replicated to the index composition," according to wealth management platform Fisdom.
