A low expense ratio not enough to buy a passive fund: Swarup Mohanty, CEO, Mirae Mutual Fund

Swarup Mohanty, CEO, Mirae Asset Investment Managers (India)

Mirae Mutual Fund, which has built a solid long-term track-record in its equity schemes, now aims to make it big in passive funds.

The company has lined up a host of funds to give investors exposure to various ideas that are not available in domestic markets. Mirae MF has recently filed for a cloud computing fund, an artificial intelligence fund, and a clean energy fund.

In an interaction with Moneycontrol’s Jash Kriplani, Swarup Mohany, chief executive officer of Mirae MF, talks about why he thinks passively managed schemes can be a big market in India. Edited excerpts:

There is a separate category of investors developing. No longer mutual funds will be the domain of non-demat account holders. There's a plethora of investors just opening their demat accounts. We are product manufacturers, why should we judge who will take which product? Asset allocation happens at the distributors' or the advisors' end or at the DIY investors' end. We don't say that this is better or that is that is better. As manufacturers, we need to make sure that our ETFs should be true-to-label, it should come at a good spread in the market because we bring our own market maker to the table. And it should have as little of tracking error as possible.

Globally, the data shows that seven passive funds are launched a day. After scheme categorisation norms, there are only so many investment ideas you can offer to investors here. But with passives, there are no limits as such. The beauty of passives is that if there is an investable universe, you can create an index and you can build a fund over it. So, permutations and combinations of the investable market are unlimited.

Also read:Is Mirae Mutual Fund turning into a passive fund house?

In India, we are still mostly in the traditional form of investing – small-cap, mid-cap and large-caps – but globally, the trend has shifted not only to thematic investing, but also to big idea investing. So, within thematics, we are seeing artificial intelligence funds, cloud computing, robotics, semi-conductors, etc. Now, we are starting to see that in India as well.

Cheapness of the fund cannot be the only criteria for buying a passive fund. Cost can just be one of the factors to buy the scheme. The other is the tracking error, the spread available in the market; sometimes the spread can be higher when markets are illiquid. So, it is a combination of factors that investors need to watch out for.

A mutual fund is a pool of investors and every individual investor’s own asset allocation is different from another. A balanced advantage fund can only be a solution for an investor, if all of her investments are in that fund, so that fund’s asset allocation becomes the investor’s overall asset allocation.