Craze for passive funds to continue, focus more on smart beta: Gurjeet Kalra of DSP Mutual Fund

Gurjeet Singh Kalra, Business Head – Passive Funds, DSP Mutual Fund

The explosive growth in investments into passively managed funds over the past five years will continue for a while, according to Gurjeet Singh Kalra, Business Head – Passive Funds at DSP Mutual Fund.

Passive investments, such as index funds and exchange-traded funds (ETFs), provide a simple, low-cost method for investors to gain market exposure.

Passive funds’ may account for 25-30 percent of total mutual fund assets under management(AUM) by 2030, up from around 15 percent at present, Kalra said in an exclusive interaction with Moneycontrol.

Previously a favourite of institutional investors, passive funds are now a big hit with retail investors, he said, adding that DSP Mutual Fund was planning to expand its portfolio of passive offerings.

Total passive AUM currently stands at Rs 9.5 lakh crore

Edited excerpts from the interview.

Given the strong demand for passive funds, are you planning to introduce more products?

Gurjeet: At present, we have 23 products in the passive investing segment which includes ETFs, index and liquid funds. Moving forward, yes, we are continually exploring new product ideas, especially in the smart beta segment, which is gaining investor interest. We aim to offer innovative products that enhance the investor experience. Once we finalise new offerings, we will provide complete details.

Your Liquid Exchange Traded Fund AUM is approximately Rs 2,000 crore. What drew investors to liquid funds?

Gurjeet: Liquid funds offer a convenient way to earn returns on idle cash. Typically, if you sell a part of your equity portfolio, the proceeds sit idle until redeployment. Investing in a liquid ETF during this interim period allows you to earn returns on that otherwise idle money. Liquid ETFs invest in overnight securities, maturing daily, which minimises credit and interest rate risks. Additionally, these ETFs simplify the process of moving funds between accounts, as you can sell equities, buy the liquid ETF, and vice versa seamlessly. They can also be used as a margin in trading.

DSP Nifty Midcap 150 Quality 50 ETF and DSP Nifty Smallcap 250 Quality 50 index fund have underperformed benchmarks. What is your strategy going ahead?

Gurjeet: Both these ETFs have 50 qualitative stocks selected on the basis of their EPS, debt-to-equity ratio, and return on equity. While the current market conditions have resulted in almost the entire market moving regardless of fundamentals, it has made it challenging for quality-focused funds to outperform. However, we believe owning quality names is better in the long run. In the current market, systematic investment plans (SIPs) in mid and small-cap stocks through quality-focused ETFs are recommended for consistent growth.

How are gold and silver ETFs placed compared to equity ETFs?

Gurjeet: There is a different way to look at it. Gold, silver for that matter is more from an asset allocation perspective. They will have their cycles in terms of performance, what appears to be a very good performance for gold. They act as a hedge against equity market volatility.

So today if an investor has 5 percent or 10 percent gold, they can hold it perpetually irrespective of how the market is behaving because that is a part of my asset allocation concept. You can add or reduce that allocation based on your tactical view but it acts as a hedge against your equity portfolio when there are uncertain times as far as equity is concerned. Therefore, gold should be part of every investor's portfolio.

Do you expect any tinkering on capital gains tax in the upcoming budget?

Gurjeet: Here, I am just hoping for no accidents, I won’t say that I don’t expect it but pray for no changes in the rejig of capital gains tax.

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