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The appeal of passive investing

With 7 index funds, 3 ETFs, and 3 Funds-of-funds launched, mobilizing a total of Rs 2,278 crore rupees, the passive investment segment far outshined the number of income schemes (5) and growth-oriented mutual fund schemes (3) between January-March 2021.

July 06, 2021 / 08:27 PM IST

It wouldn't be an overstatement to term the Indian Mutual Fund Industry as akin to Goliath-the biblical giant famed for his power and force. With 33 trillion rupees worth of assets under its management as of May 2021 and registering a year-on-year increase of almost 35.87 percent, the industry has only gone from strength to strength during the last few years.

This behemoth meets David, the diminutive, unpredictable hero who wins over Goliath with a slingshot in passive investing. Having caught great momentum over the last few years, it has steadily and certainly become a force to reckon with. Passive investment products, including the index or exchange-traded funds, make up for as much as 25% of the entire equity AUM (Assets under management) of the country, per AMFI data. Naturally, every major name in the industry, from Zerodha to Paytm and more, does not want to miss a chance to jump on this bandwagon. But why?

Is it time for Passive Investing?

With an intent to offer “simple to understand products for first-time investors”, Zerodha, which is currently awaiting its regulatory approval for an AMC has made it amply clear that passive investing is here to stay. Even Navi Mutual funds, backed by Flipkart co-founder Sachin Bansal, recently launched a Nifty 50 Index fund to tap this market. While the first ETF was listed on the Indian stock exchanges in 2002, around 21 ETFs were listed last year itself, with the 100th one enlisting this year. Five years ago, the Indian scenario would have been vastly different, with just 57 products and 2 billion dollars of AUM. 

The trend is in keeping with the recent AMFI (Association of Mutual Funds) data that corroborates the rise of passive funds, which include Index funds, ETFs, Gold ETFs, and Funds of Funds (FOFs).

ParametersJanuary-March 2021May 2021
Number of schemes182191
Net Inflows Rs 20,062 croresRs 9,331 crores
Net Asset Under ManagementRs 3,21,657 croresRs 3,38, 723 crores
Source: AMFI Quarterly Data.