Mutual funds get active with passive scheme NFO launches

Fund Managers have also told Moneycontrol that the growing demand for passive funds are due to two main factors - higher fees associated with active fund management and the consistent under performance of many active funds.

Passive funds that have been fast gaining popularity over the last few years have witnessed a strong spurt in the current calendar year with New Fund Offers (NFOs) hitting the markets at regular intervals.

The pace has been such that the number of NFOs of passive schemes in the first seven months of the current calendar year has already surpassed that of the whole of last year.

Data from Ace Equity MF shows that as many as 63 passive scheme NFOs have been launched in 2024 till date -- higher than the 51 schemes launched in the whole of 2023. Passive Funds include index funds and exchange-traded funds (ETFs).

Also read: Size does matter: Large fund houses lead the way in NFO launches

Meanwhile, the number of active equity NFOs launched in 2024 till date is pegged at 38, as against a little over 50 that were launched in 2023.

This year, Tata Mutual Fund has launched 10 new passive funds followed by HDFC AMC with five and Mirae Asset Management and ICICI Prudential with four each, amongst others.

More importantly, the numbers will continue to register a strong growth as fund houses do not seem to be in a mood to slowdown in terms of passive scheme launches. In July, asset management companies (AMCs) have filed draft applications with SEBI for around 19 passive funds across the two categories -- ETFs and Index Funds.

And it is not just that the fund houses are launching NFOs. These schemes are attracting a good amount of money as well. The first month AUM of passive schemes launched in the current calendar year is around Rs 3657 crore, again higher than last year’s Rs 1,515 crore.

Industry players, meanwhile, are not surprised as they highlight trends and investor behaviour in the passive arena.

Also read: Five key highlights from AMFI’s June numbers

In a recent report, Tata AMC stated that passive funds have seen a rapid increase in AUM with their share as a percentage of the overall market AUM rising rapidly from 2.01 percent in FY16 to 17.02 percent in FY24.

The entry of new players in the Indian mutual fund arena is also another key reason for this spurt.

Anil Ghelani, Head of Passive Funds and Products, DSP MF, notes that there are certain players who have started their business activities recently leading to an increasing number of NFOs -- both passive and active -- this year.

In 2024, till date, DSP MF has launched around three passive funds.

“This year's launches can be divided into structural thematic launches and general product launches. Structural thematic launches include funds targeting specific themes or sectors that look promising or specific funds for an immediate market opportunity that offers a structural investment option for the long term,” says Ghelani adding that these funds are usually a part of a broader strategy by AMCs -- both seasoned and new -- to provide a comprehensive suite of investment options, catering to various investor needs and preferences.

As the market evolves, Ghelani believes that the introduction of these new funds can also serve as a way for AMCs to differentiate themselves from competitors.

In an earlier interaction, Siddharth Srivastava, Head - ETF Products & Fund Manager, Mirae Asset Investment Managers (India) had told Moneycontrol that these passive NFOs offer unique opportunities that may appeal to investors with varying risk profiles.

“For instance, a low volatility based fund may interest a risk-averse investor whereas an alpha-based fund may interest a bullish investor with higher risk appetite,” he had said.

Fund Managers have also told Moneycontrol that the growing demand for passive funds are due to two main factors - higher fees associated with active fund management and the consistent under performance of many active funds.

Passive funds have lower expense ratios, translating to higher net returns for investors.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.