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A report released by Motilal Oswal Financial Services reveals that passive funds have outperformed active funds in terms of AUM growth.
The study shows that ETFs and index funds have seen massive AUM annual growth of 38% and 129%, respectively as against CAGR 17% in active funds over the past five years.
In fact, between June 2019 and March 2023, the passive funds have received inflows of Rs.4 lakh crore, which is in line with net inflows of active equity funds. As a result, the AUM of passive funds now stands at 17% of the total industry AUM.
However, the majority of inflows has come from HNIs and corporate investors.
Here are other key findings of the report:
HNI trend in passives
“HNI ETF AUM contribution over FY19-FY23 has registered a CAGR of 70% to Rs.340 billion in FY23. The AUM per folio for ETFs in the HNI category is at Rs.2 billion as compared to Rs.0.9m in equity funds. It is pertinent to note that the number of folios for HNIs in ETFs is at just 2% of the equity funds folios, leaving significant headroom for deeper penetration. From a distribution perspective, HNIs are informed investors, and hence, use platforms that allow direct investing into the passive funds. HNI ETF AUM is dominated by Nippon AMC with ~64% share and it is followed by Edelweiss AMC with 19% share as of FY23.”
“In the Index funds too, HNIs have witnessed an AUM CAGR of 145% over the past four years. Index funds AUM in the HNI segment is 1.9x that of ETFs AUM. The AUM per folio in this segment at Rs.2.3m is higher than ETFs and the number of folios is 4% of the equity fund folios,” said the report.
Retail trend in passives
Retail AUM in ETFs has registered a CAGR of 56% over FY19-23 to Rs.97b in FY23. The growth has been driven by a thrust from online distributors such as ET Wealth, Groww, and other platforms. However, the share of ETFs in retail total AUM is a meagre 2%.
The retail segment too has witnessed a CAGR of 82% in their index funds AUM over the past four years and is at 1.8x the AUM in the ETF segment. The AUM per folio in this segment at Rs.50k is 6x that of AUM per folio in ETFs and the number of folios is 4% of the equity fund folios. Nippon dominates retail AUM with 80% market share as on FY23.
