ACTIVE GAINS

PASSIVE FUNDS PROVIDE EXPOSURE TO MARKET INDICES, SECTORS OR THEMES WITHOUT REQUIRING IN-DEPTH ANALYSIS OR ACTIVE MANAGEMENT DECISIONS

- NACHIKET KELKAR

It is no longer a secret that Indian investors love mutual funds. Some ₹26,500 crore goes to mutual funds every month via systematic investment plans (SIPs) alone, and it has helped offset the massive outflow of money from foreign institutional investors in the recent months.

A big driver of that surge is index funds and exchange traded funds (ETFs), or passive funds, as they are called. Simplicity is the highlight of passive funds, which makes them especially popular among new investors. A Sensex index fund, for instance, will mirror the Sensex and most of the investments in this fund will be in the 30 shares that make up the benchmark. A US S&P 500 index fund will invest in the top 500 global corporations that make up the S&P 500 stock index in the US.

There were as many as 515 funds in the passive space as of December 2024. In the last financial year (2023-24), the inflows into passive funds were at ₹63,832 crore. This year, it surged to ₹1.08 lakh crore in just three quarters (April-December). The assets under management in passive funds stood at 10.85 lakh crore as of December 2024, a bulk of them in equity funds. Passive funds now account for 16 per cent of total mutual funds AUM.

"The rapid growth of the passive investment space in India is driven by a combination of factors, including rising investor awareness about cost-efficient and transparent products, growing institutional participation from entities, and the regulatory push for low-cost investment options," said Chintan Haria, principal, investment strategy, ICICI Prudential Mutual Fund. The fund house has strategically launched index funds across various market segments and themes to cater to diverse investor preferences and to ensure broad market access, he said.