Investors throng to passive funds

• Follow

Investors are banking on passive funds as a mode investment. A recent study by Motilal Oswal AMC which had over 2,000 respondents, finds 61% had invested in at least 1 passive fund. SIP turned out to be the preferred way of investing in the markets for 3 out of every 4 respondents. The main reasons attributed for this were the low-cost nature and simplicity of these funds. 

Growing AUMs According to the report, since 2018, the assets under management (AUM) has grown at a CAGR of 54%. From Rs 83,000 crores in FY18, the segment jumped 8.5x in about 5 years, standing at around Rs 7 lakh crores. 

Said Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company Ltd, “Passive funds are widely popular in the U.S. and have over 50%market share. We have started seeing similar trends in India over the last few years as well. With a market share of around 17%, we believe that there is ample runway for passive funds ahead”. 

Passive funds are also increasingly finding a bigger space in investor portfolios. Here’s how the respondents chose to allocate their money to passive funds while investing. 

Investors also had a clear affinity for Index funds, amongst other passive funds. 87% respondents preferred investing via index funds, given that it did not require a demat account. However, most of them (~60%) made their investment decisions based on the information received via social media. 

What’s more, as per the survey, 80% of those studied wanted to hold their investments for more than 3 years. A meager 3% aimed to liquidate their investments in less than 12 months, reflecting India’s growing propensity for long-term wealth creation.

Says Shaily Shah, Co-founder, Tarrakki, “Passive investing is slowly gaining ground in India. Index and passive funds are a great way for investors to save on high fund management costs. Investors can earn 0.5% to 1.5% higher returns vs actively managed funds due to low expense ratios. Several actively managed funds are failing to beat the index making passive and index funds a very attractive offering”.