Around 13 index mutual funds were launched in September which together mobilised Rs 3,656 crore. Among 27 new funds launched in September, this was the highest number of funds launched.
These funds were based on healthcare, tourism, private banks, equal weight indices. Five fund houses - Bandhan Mutual Fund, Kotak Mutual Fund, Motilal Oswal Mutual Fund, Nippon India Mutual Fund, and UTI Mutual Fund - launched two index funds each.
Some of the index funds launched in the said period were Axis CRISIL-IBX AAA NBFC Index – Jun 2027 Fund, Kotak Nifty India Tourism Index Fund, Motilal Oswal Nifty 500 Momentum 50 Index Fund, Nippon India Nifty 500 Momentum 50 Index Fund, SBI Nifty 500 Index Fund, and Tata Nifty200 Alpha 30 Index Fund.
On the contrary, in September 10 active mutual funds were launched which together collected Rs 10,817 crore. Out of these 10 funds launched, four were sectoral and thematic funds.
Also Read | Nearly half of MFs inflows seen in sectoral funds. How healthy is the trend?
The surge in the number of passive funds launched in a month highlights the growing shift towards passive investing or funds. The main thing to understand from this trend is whether it is getting tougher for the active fund managers to beat the index or if this is a rise in interest towards passive funds?
According to the expert, the equity oriented passive funds have seen particularly strong growth because of record high in Nifty and Sensex whereas for the debt oriented passive funds, the tapering bond yields have helped boost the AUM by offsetting outflows. This trend reflects the challenge active fund managers have in outperforming these robust index returns.
“The AUM of passive funds has grown significantly, with a year-over-year increase of 44.92% in September, up from 44.62% in August, and progressively higher than previous months. This surge is linked to record highs in Nifty and Sensex and a rally in longer debt indices, fuelled by hopes of rate cuts. Equity-oriented passive funds have seen particularly strong growth, though tapering bond yields have also helped boost passive debt AUM by offsetting outflows,” said Tanvi Kanchan Head- UAE Business and Strategy, Anand Rathi Shares and Stock Brokers.
The expert also believes that active management is still relevant in India when compared to the US. The Indian mutual funds hold 8-9% of the country's equity market, this figure in the US is nearly 30%. This difference shows that there is still room for active management to grow in India.
Also Read | Quant Mutual Fund reduce cash holding below 14% in September
“Active management remains relevant in India, especially compared to the U.S. While Indian mutual funds hold around 8-9% of the country’s equity market, in the U.S., this figure is approximately 30%. This significant difference suggests that the Indian market still has substantial room for active management to grow and play a key role in the investment landscape. As the Indian mutual fund industry grows and potentially reaches 20% or more of the market, active strategies may face greater challenges,” said Tanvi Kanchan.
“Investors should recognize that active managers may encounter short-term style headwinds and should remain invested through a full market cycle. By identifying skilled managers and staying committed, investors can maximize the benefits of active management over the long term,” she added.
According to the monthly data by Association of Mutual Funds in India, among four passive fund categories, index funds received the second highest inflows of around Rs 29,313 crore in FY25 so far.
In the last one year, passive mutual funds have offered upto 66.55% return. In 2024 so far, NSE and BSE have launched many new indices such as Nifty Capital Markets Index, Nifty India Tourism Index, Nifty Rural Index, Nifty IPO Index, Nifty Top 10 Equal Weight Index and many others.
With NSE and BSE launching many new indices, mutual fund houses launching new funds based on them, and investors putting in money, will the AUM of passive mutual funds be equivalent to active funds?
The expert believes that as NSE and BSE are launching new indices and mutual funds are following them for launching new funds, investors are getting more attracted to passive funds because of their characteristics such as cost efficiency, transparency. With the increase in awareness among investors for passive investments, a substantial increase in passive funds is expected.
“Investors are increasingly attracted to passive funds due to their cost efficiency, transparency, and the ability to easily track specific market segments. As these passive investment options continue to expand and investor awareness about their benefits grows, we’re likely to see a substantial increase in passive funds,” commented Tanvi Kanchan.
“As time period increases and markets go through various cycles, providing alpha generating opportunities to fund managers. Active fund managers, over the long term cycle do have a higher probability of generating alpha over benchmarks which the passive funds follow. So while I do believe that the AUM will see a huge inflow from DII’s, however active fund will look attractive over longer market cycles,” she added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.
These funds were based on healthcare, tourism, private banks, equal weight indices. Five fund houses - Bandhan Mutual Fund, Kotak Mutual Fund, Motilal Oswal Mutual Fund, Nippon India Mutual Fund, and UTI Mutual Fund - launched two index funds each.
Some of the index funds launched in the said period were Axis CRISIL-IBX AAA NBFC Index – Jun 2027 Fund, Kotak Nifty India Tourism Index Fund, Motilal Oswal Nifty 500 Momentum 50 Index Fund, Nippon India Nifty 500 Momentum 50 Index Fund, SBI Nifty 500 Index Fund, and Tata Nifty200 Alpha 30 Index Fund.
On the contrary, in September 10 active mutual funds were launched which together collected Rs 10,817 crore. Out of these 10 funds launched, four were sectoral and thematic funds.
Also Read | Nearly half of MFs inflows seen in sectoral funds. How healthy is the trend?
The surge in the number of passive funds launched in a month highlights the growing shift towards passive investing or funds. The main thing to understand from this trend is whether it is getting tougher for the active fund managers to beat the index or if this is a rise in interest towards passive funds?
According to the expert, the equity oriented passive funds have seen particularly strong growth because of record high in Nifty and Sensex whereas for the debt oriented passive funds, the tapering bond yields have helped boost the AUM by offsetting outflows. This trend reflects the challenge active fund managers have in outperforming these robust index returns.
“The AUM of passive funds has grown significantly, with a year-over-year increase of 44.92% in September, up from 44.62% in August, and progressively higher than previous months. This surge is linked to record highs in Nifty and Sensex and a rally in longer debt indices, fuelled by hopes of rate cuts. Equity-oriented passive funds have seen particularly strong growth, though tapering bond yields have also helped boost passive debt AUM by offsetting outflows,” said Tanvi Kanchan Head- UAE Business and Strategy, Anand Rathi Shares and Stock Brokers.
The expert also believes that active management is still relevant in India when compared to the US. The Indian mutual funds hold 8-9% of the country's equity market, this figure in the US is nearly 30%. This difference shows that there is still room for active management to grow in India.
Also Read | Quant Mutual Fund reduce cash holding below 14% in September
“Active management remains relevant in India, especially compared to the U.S. While Indian mutual funds hold around 8-9% of the country’s equity market, in the U.S., this figure is approximately 30%. This significant difference suggests that the Indian market still has substantial room for active management to grow and play a key role in the investment landscape. As the Indian mutual fund industry grows and potentially reaches 20% or more of the market, active strategies may face greater challenges,” said Tanvi Kanchan.
“Investors should recognize that active managers may encounter short-term style headwinds and should remain invested through a full market cycle. By identifying skilled managers and staying committed, investors can maximize the benefits of active management over the long term,” she added.
According to the monthly data by Association of Mutual Funds in India, among four passive fund categories, index funds received the second highest inflows of around Rs 29,313 crore in FY25 so far.
In the last one year, passive mutual funds have offered upto 66.55% return. In 2024 so far, NSE and BSE have launched many new indices such as Nifty Capital Markets Index, Nifty India Tourism Index, Nifty Rural Index, Nifty IPO Index, Nifty Top 10 Equal Weight Index and many others.
With NSE and BSE launching many new indices, mutual fund houses launching new funds based on them, and investors putting in money, will the AUM of passive mutual funds be equivalent to active funds?
The expert believes that as NSE and BSE are launching new indices and mutual funds are following them for launching new funds, investors are getting more attracted to passive funds because of their characteristics such as cost efficiency, transparency. With the increase in awareness among investors for passive investments, a substantial increase in passive funds is expected.
“Investors are increasingly attracted to passive funds due to their cost efficiency, transparency, and the ability to easily track specific market segments. As these passive investment options continue to expand and investor awareness about their benefits grows, we’re likely to see a substantial increase in passive funds,” commented Tanvi Kanchan.
“As time period increases and markets go through various cycles, providing alpha generating opportunities to fund managers. Active fund managers, over the long term cycle do have a higher probability of generating alpha over benchmarks which the passive funds follow. So while I do believe that the AUM will see a huge inflow from DII’s, however active fund will look attractive over longer market cycles,” she added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.
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