Active schemes lag, index folios soar: AMFI data

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The folios in index funds grew by over 400% from 34,500 in March 2020 to over 15 lakh in August 2021, according to the latest data from the Association of Mutual Funds in India (AMFI). Assets under management of various mutual fund managers saw a fivefold rise during the same period from Rs 5,815 crore to Rs 28,093 crore, according to the AMFI data.

Assets management soars

Investors were turning to index funds given the inability of active fund managers to outperform benchmark indices. This case was seen more often in the large-cap category. Several first-time investors opted for passive funds for the ease of understanding, no fund manager bias, and the low cost, the Economic Times reported quoting financial planners.

Fintech platforms were also found to be introducing several new DIY (do it yourself) investors to mutual funds, given how several offices were closed during the pandemic. These platforms sold index funds since they were easy to understand and did not need any tracking.

Dev Ashish, founder, Stableinvestor.com, a Sebi registered investment advisor, was quoted by ET as saying, “Investors believe if you cannot generate alpha in the large-cap space it is better to reduce the cost. Hence a subset of investors using large-cap funds is moving to index funds.”

The investors were also found to be allocating funds for mid-cap and small-cap index funds and thematic funds, despite bulk of the finances coming in schemes replicating Nifty 50, S&P, BSE Sensex, Nifty and Next 50, the report added.

According to the data from SPIVA (S&P Indices Versus Active) India, as cited by the ET, most of the actively managed large-cap equity funds underperformed large-cap benchmarks. Slightly over 68% of the large-cap funds were found underperforming over the last 10 years ending 2020.

Experts weigh in

According to the experts, the booming digital platforms offering direct plans were also spurring the growth of index funds for the same period.

Pratik Oswal, head (passive funds), Motilal Oswal AMC, was quoted by ET saying, “We see incremental folios in passive funds coming from new-age fintech platforms.”