Despite the fluctuations in the stock market, mutual fund investors remain steadfast in their confidence. They continue to invest in mutual fund schemes, but a notable shift has occurred: investors are now making more informed decisions. They are taking the time to research funds before committing their capital.
Recently, there has been a significant trend towards investing in passive funds, including index funds and exchange-traded funds (ETFs). This has resulted in a 37 percent increase in the number of folios, or account numbers, associated with these funds. Additionally, the total assets under management have risen by over 24%, surpassing Rs 11 lakh crore.
In 2024, a total of 122 new passive fund schemes were introduced, according to data from the Association of Mutual Funds in India (Amfi). Nippon India Mutual Fund, a leading player in the industry, now boasts 1.46 crore folios in passive funds, with assets under management (AUM) of Rs 1.65 lakh crore, representing an impressive 55% of ETF trading volumes. Other fund houses, including Kotak Mutual Fund, Axis, and Motilal Oswal Mutual Fund, have also experienced significant growth in their passive fund offerings.
What is a passive fund?
A passive fund is a specific kind of mutual fund that invests in a portfolio designed to replicate market indexes such as Nifty and Sensex. This type of fund allocates its investments based on a benchmark index, which means there is no need for a fund manager to oversee it. For instance, if a passive fund is benchmarked to the Nifty 50, it will exclusively invest in the stocks of companies that are part of that index. The investments in a passive fund are distributed among Sensex 30 and Nifty 50 according to their respective weights, and the manager plays a minimal role in its operation.
Arun Sundaresan, Head of ETFs at Nippon India Mutual Fund, highlights that passive funds offer an intriguing option for investors. They provide enhanced exposure to various segments of the market, making them genuine, well-defined products. There is a wide range of unique funds available, each presenting different portfolios and varying risk-return profiles for investors to select from.
With the increasing interest in this category, many other mutual fund companies have also introduced their own passive funds. These funds have gained popularity due to their low expense ratios and straightforward nature, appealing to both novice and seasoned investors alike.
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