Passive fund assets to grow 8 times to ₹25 trillion by 2025: Report

At the end of March, the size of the Indian mutual fund industry was ₹32.17 trillion (about $416 billion), of which about 10% of assets were in passively managed products.

Passive investing is the most basic way to invest in mutual funds and the objective of this style of investing is to mirror the index and not beat it. Two common ways to invest passively in the equity market are either index funds or index exchange-traded funds (ETFs). Both essentially mirror an index.

A search of the latest S&P Index vs Active (SPIVA) India Scorecard report revealed that 86.2% of Indian equity large-cap funds, 57.1% of mid-/small-caps and 53.1% of equity-linked savings schemes. 7% OR (ELSS) fund underperformed its respective benchmark for the one year period ended June 2021.

According to Finity’s Passive Investing Report 2021, passive investing has emerged as a promising way to raise investors’ money.

The report said that in the last five years, the Indian passive market took off, with assets growing by over 1,2000% in absolute terms. Since March 2016, inactive assets have increased from AUM ₹22,409 Cr to ₹3,10,330 crore in March 2021, at a compound annual growth rate (CAGR) of 69%.

Additionally, inactive assets have nearly doubled in the past 12 months.

According to the report, three factors contributing to the growing interest in passive investing in India are the poor performance of active funds; Especially in the large cap category, the low cost of passive funds, and regulatory and government policies that encourage investment in passive investment products.

Abhilash Joseph, Business Head, Finity said, “With the entry of fintech companies into the asset management industry, the number of passive funds launched every month is at an all-time high, resulting in healthy competition and innovation in the product. We expect the total AUM in inactive assets to more than double in the next two years.”

As of March, the AUM of passive investment as a percentage of total AUM of the mutual fund industry in India stood at 10% at the end of March 2021, as compared to 2% at the end of March 2016. This represents a five-fold increase in India. five years. The passive fund space is set to grow bigger with the growth of the mutual fund industry and the backing of the piggy bank on India as one of the fastest growing economies.

A lot of Indians have joined the investment bandwagon since the start of the Covid-19 pandemic. For most investors looking for simple solutions, passive funds offer the simplicity and level of returns that an index can match. A major advantage of passive investing is the low cost. One major disadvantage is giving up the option to outperform the index.