The mutual fund industry holds around Rs.3.88 lakh crore of its AUM as on September 2021 in index funds and ETFs (equity and fixed income). This figure has jumped by more than 75% over the last year, hinting at the newfound acceptance of passives.
While the active v/s passive debate is yet to conclude, let’s see what distributors/advisors say about passive funds.
Lovaii Navlakhi, MD & CEO, International Money Matters believes passives are primarily a better bet in large-cap investing. Additionally, they also make sense for first-time investors wanting to venture into international territories.
Mumbai RIA Kalpesh Ashar of Full Circle Financial Planners and Advisors added, “While the last three to five years point out at the outperformance of passive funds in the large cap space, actives and passives must be distributed equally in this segment. This facilitates a meaningful integration of both contrasting strategies.”
On the other hand, Vishal Dhawan of Plan Ahead Wealth Advisors recommends a higher weightage to passive funds in the active-passive mix for large-cap and international investing.
Noida MFD Akta Sehgal of Manas Wealth believes passive funds can help novice investors get a flavour of equities.
Siliguri MFD Chandan Ghosh of Prudent Wealth recommends passives to his cost-conscious investors for enjoying broader access to the markets.
Index funds or ETFs?
Holding and transaction costs must be considered while simultaneously evaluating passive fund categories. Comparing the two, Lovaii said, “In most cases index funds tend to have an advantage over ETFs owing to the absence of demat and brokerage charges.”
Kalpesh added, “Better liquidity and ease of access makes index funds more lucrative than ETFs.”
“The liquidity risk is better managed in index funds,” seconded Vishal. Likewise, Akta and Chandan emphasized the comfort of transacting in index funds.
Commenting on the fund categories, Gaurav Rastogi, Founder & CEO, Kuvera said, “India is still largely an index fund market because of technical constraints such as liquidity and lack of index arbitrage. However, ETFs are growing in popularity which should close the gap in the next five to seven years.”
