How To Grow Your Wealth Passively

THE Securities and Exchange Board of India recently relaxed rules to enable mutual funds to launch passive investment schemes swiftly.

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You may wonder about the importance of this action. Despite all the noise about mutual funds through active campaigning, only three to four per cent of people invest through mutual funds. The total assets under management of MFs may have topped 60 lakh crore. However, as a percentage of gross domestic product or GDP, it is not even 20%.

In developed markets, it is well over 100% of GDP.

When mutual fund regulations were put together in the 90s, the regulatory framework for eligibility, trustee and sponsor relationships, asset management, and other things was designed with active fund management in mind. That means diversified equity, hybrid, and multi-cap schemes that involve a fund manager's creation and maintenance of a portfolio. The job is to outperform the benchmark index.

Hence, it is essential to have strict oversight when setting up a fund management team.