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Passive products are certainly far more efficient from the cost perspective and offer transparency in investments. While passives are growing significantly, debt as well is claiming its share in this space. In this regard, Bhushan Kedar, Director Funds and Fixed Income Research, Crisil shared his views on debt passives at the Cafemutual Passives Conference 2022 (CPC 2022).
Bhushan believes that after 2017-2018 and covid-19, many investors have become risk averse. Since asset allocation, security selection, credit rating profile and maturity profile duration are clearly disclosed in index products, investors get a better perspective on the risk running in a portfolio. Additionally, more and more themes will come up in this space and investors will have enough and more opportunities to diversify.
Active debt vs passives debt
In active debts like medium duration or long duration funds, the expense ratio ranges from 100 bps to about 150 bps, however, some could be on the lower side. On the passive side, the expense ratio ranges between 11 bps to about 30/40 bps. This amounts to an annual difference of 100 bps. Since cost is a critical element for decision making, investors find passives appealing.
Fixed deposits vs debt passives
Data suggests that 45%-52% of savings typically go into fixed deposits. Indian retail investors have been comfortable with fixed deposits as a product. So what is it that could replicate a fixed deposit like product on the mutual fund platform?
Target maturity products invest in risk free assets like g-sec or quasi-sovereign like AAA PSU (Public Sector Undertaking) bonds. On a portfolio over a three/five/seven-year horizon, such products offer 20-30 bps to about 100 bps over and above fixed deposits of large public sector banks. Additionally, it offers a capital gain advantage as well.
Here is a snippet of Bhushan’s session. You can watch the complete session along with the session of other industry veterans who spoke at CPC 2022 at a nominal price of Rs. 499 only. Simply write to us at newsdesk@cafemutual.com and prepare for Passives - ‘The New Frontier’!
