Passive money becomes hyperactive – Hindu business line

Indian investors are increasingly active in passively managed mutual fund schemes. The latest AMFI data shows that monthly net inflows into passive funds (which includes index funds and ETFs) in October were nearly three times (Rs 10,260 crores) than active funds (Rs 3,872 crores). This is the highest net flow multiple that this category of low-cost funds has seen compared to active funds in the past 24 months.

Every month for the past two years, the passive fund category has seen an increase in consecutive monthly net inflows totaling ₹2.6-lakh-crore. In contrast, active funds collected only 50 per cent – cumulative net inflows of INR 1.4 crore.

Why interest

The underperformance of active funds, the advent of debt securities and the constant launch of new offerings fueled the growth of the passive sector, which today has more than 320 open products and accounts for 16 per cent (₹6.4-lakh-crore) of the mutual fund (MF) industry assets (₹39-lakh). -crore).

While inflows from EPFO ​​have also helped the passive fund sector gain weight as it invests in select ETFs, the increase in retail interest is apparent in the growing number of securities. After the Covid market crash, negative MF papers enjoyed faster growth, albeit on a smaller base. In March 2020, for example, the number of records for passive funds and active funds were 32 thousand and 8.3 crore, respectively. While the number of passive papers has increased more than sixfold since then, investor accounts in the active fund have only grown 42 percent.

explosive growth

Even about five years ago, there were only 100 individual passive schemes that managed about 1 crore, index funds, ETFs and offshore mutual funds combined. But in half a decade, the number of passive schemes has more than tripled and assets under management have increased nearly sixfold. In fact, in the past 12 months alone, more than 80 passive stocks and nearly 50 debt products have been launched.

On the equity side, 50-90 per cent of active funds are behind in benchmarks in 3, 5 and 10-year periods across popular categories like large-cap, ELSS and medium/small, according to the latest SPIVA India data. This was an incentive for the negatives, which also have a lower cost structure (expense ratio). Passive offers are typically 50-100 basis points cheaper than their active counterparts, although this can vary across categories.

The popularity of ETFs/Gold Funds in investor asset allocation is another reason for the growth in negatives. Gold ETFs and ETFs have around INR 20,000 crore each currently.