A recent study found that passive funds have gained popularity among Indian investors, grabbing nearly 17% of Assets Under Management (AUM) in 2023 from 1.4 percent in 2015. Passive funds mimic market indexes or market segments. These funds include passive index funds, ETFs, and ETF-investing Fund of Funds.
Motilal Oswal Asset Management Company found that 61% of investors have invested in at least one passive fund and 53% have raised their allocation to passive funds in the past year. Investors choose passive funds for their simplicity, cheap cost, and market returns. The survey included almost 2,000 national investors.
All passive funds have roughly Rs 83,000 crore in AUM at the end of FY2018. “As of Mar-2023, it has grown to over Rs 7 lakh crore, rising 8.5 times in five years at a compound annual growth rate (CAGR) of 54%,” the survey stated.
Index Funds are preferred by investors, with 87% investing in them and 41% in ETFs. Only 42% of respondents favored lumpsum investing, while 75% selected monthly systematic investment plans (SIPs).
The survey found that roughly half of passive fund investors commit 10-30% of their portfolio to passive funds. 15% of respondents placed 31–50% in passive funds, while 12% assigned more over 50%. However, 28% of research participants allocate less than 10% to passive funds.
ETFs are traded on stock exchanges and require a demat account, the fund firm said. However, investing in Index Funds is simple and similar to other mutual fund transactions.
The Indian investing environment is changing quickly, with over 80% of respondents expecting to keep their assets for more than 3 years and 16% for 1-3 years. Only 3% of investors wanted to sell their investments within a year.
The survey indicated that 60% of respondents acquire market and investing information from Twitter and Instagram.
However, just 26% follow conventional media for investment information. In its annual report issued Monday, capital markets regulator Sebi said it is working with the mutual fund sector to develop “MF Lite” standards for passive funds to minimize compliance and encourage innovation.
Conclusion:-
According to Motilal Oswal Asset Management Company, passive funds accounted for about 17% of AUM in 2023 in India. Index funds, ETFs, and Fund of Funds investing in ETFs replicate market performance. Passive funds’ simplicity, low cost, and market returns have attracted investors. Over 2,000 national investors were surveyed. As of Mar-2023, all passive funds’ AUM was over Rs 7 lakh crore, up 54% from Rs 83,000 crore. SIPs are preferred over lumpsum investing. Nearly half of passive fund investors invest 10-15%, while 15% invest 31%-50%. Over 80% of Indian investors aim to hold their assets for over 3 years and 16% for 1-3 years. 60% of respondents use social media for market and investment information, while 26% use conventional media.
