Passive investing seems to be gaining popularity with each passing month. Data from Association of Mutual Funds of India or AMFI reveals that investors have started putting in big money in passive schemes, including index funds and ETFs. Index funds saw net inflows of Rs 6,061.86 crore in April and ETFs other than gold received a whopping Rs 8,662.80 crore. Inflows into gold ETFs stood at Rs 1,100.37 crore.
“Passively- managed funds continue to attract significant investor interest. During the month only one index fund was launched which garnered around Rs 91 crore. This signifies that the majority of investments came in existing funds. During the month, Index funds and Other ETFs combined received net inflows of INR 14,784 crores. Passively-managed funds in recent times have gained prominence among investors, who have started adding these funds in the portfolio from a diversification perspective,” says Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.
Since the beginning of this year, fund houses have launched 32 new index funds and 13 new ETFs. Many new passive schemes are also set to hit the market soon. The 32 index funds launched by mutual fund houses have garnered Rs 7,239 crore in their NFO period. The ETFs launched this year mobilized Rs 377 crore. All this shows that passive funds have made a place for themselves in the investor portfolios.
Another factor playing a part in the success of passive funds in India has been product innovation, say fund managers. In the last two years, fund houses have come out with different kinds of passive products to suit various investor needs. This innovation was also fueled by Sebi’s mandate of one scheme per category in the active space. Passive funds do not have any such restrictions as of now.
“Over the past couple of years, digital adoption along with an increased level of investor awareness and product innovation has brought low-cost ETF investing under the spotlight. Today, investors have a variety of options to choose from such as smart beta ETFs (eg Low Volatility ETFs) which can help generate better risk-adjusted returns along with sectoral ETFs (eg Bank ETF). Gold/Silver ETFs are also becoming popular,” says Chintan Haria, Head – Product Development & Strategy,
If you are thinking of investing for a long term without changing your portfolio much, experts believe that a plain vanilla index fund is a good low cost option for you. However, they also say that there is a lot of alpha to be made in the Indian market, so passive funds cant replace active funds yet.