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As the CEO of Angel MF, what are your three key priorities?
Our goal is to be a passive only AMC with a combination of products focusing on market cap-based indices and smart beta indices.
Our ultimate priority will be to educate investors about the benefits of passive investing and the indexing philosophy.
Our second priority is that we want ETFs and passive funds to reach every household and portfolio as they eliminate the non-systemic risk of stock picking and fund management. They simplify investing as they are based on the concept of investing with collective wisdom of the market. Rather than the judgment of an individual, indices are typically based on full market cap or free float both driven by market prices.
Third, educating investors and expanding the reach of passive funds is key to growing the investor base. We want more people to enter the capital markets by understanding the power of passive investing.
Will you focus only on passive funds, or do you plan to offer active funds in the future?
No, we will be a passive-only AMC with no plans to enter the active space. This aligns with our belief in the indexing philosophy. We have been involved in ETFs and index funds since the industry's early days and have consistently promoted this approach to investors. Our goal is to continue spreading this philosophy to as many investors as possible.
Passive funds now make up 17% of the total MF industry AUM, so what do you think has contributed to this immense growth?
In the early years from 2001 to 2010, Benchmark AMC was the only passive-only AMC in India, focusing on educating investors, though growth was slow as the market was still evolving. The next phase began around 2014-2015 when the government started using ETFs for disinvestment, making ETFs more familiar to retail investors, a household name. Insurance companies were also allowed to invest in ETFs, particularly in banking and other sectoral ETFs.
Regulatory reforms in 2018 further accelerated growth. SEBI introduced categorization that defined large-cap, mid-cap, and small-cap stocks with clear guidelines and ensured large-cap funds could no longer rely on mid- and small-cap stocks to generate alpha. Benchmarking rules mandated the use of the Total Returns Index (TRI) for performance comparison, helping investors see if funds were genuinely outperforming.
The rise of digital platforms also offered real-time access to fund performance data, which helped investors make informed decisions. Increasing awareness has led not only institutions but also HNIs and family offices to invest in passive funds, although retail participation is still limited. MFDs can help increase retail participation in passive funds.
Why do you think that MFDs should look at passive funds?
Over the last 5-6 years, equity assets as a percentage of the mutual fund industry's AUM have grown from around 30% to nearly 60%. Higher AUM leads to lower charges, which impacts payouts. On the active side, commissions generally range from 55 to 95 basis points, depending on the fund category and size, especially among the top 10 AMCs.
In contrast, passive funds can offer competitive payouts, around 60 to 65 basis points, if priced well. Combined with the simplicity of passive investing—where returns mirror the market, without concerns about stock selection or fund manager decisions—this makes passive funds an attractive option for MFDs.
By recommending passive funds, MFDs can serve more clients efficiently, as they don’t need to justify fund managers’ choices. MFDs should consider passives as they will have competitive pricing and there is a large potential client base that they can capitalize on.
Within passive investing, should MFDs prefer ETFs or index funds? How should they integrate both into their business?
There should not be a civil war between ETFs and index funds. ETFs and index funds are two vehicles delivering the same indexing philosophy—like two streams from the same glacier. Both can provide the same portfolio exposure. The choice should depend on the investor’s convenience and what they find flexible. Also, there can be combination.
Rather than debating which is better, MFDs should offer both options to clients.
One of the key advantages of passive funds is their simplicity. But with the rise of smart beta and thematic funds, is it getting too complicated for investors?
An investor's portfolio should follow a core-satellite approach. The core should consist of market-cap-based index funds that capture the market's overall movement, like index funds and ETFs. The satellite portion can include stocks, active funds, AIFs, PMS, or smart beta funds—anything where the investor or advisor believes alpha can be generated. But remember, predicting outperformers is difficult, it is similar to a fund manager throwing darts and hoping for the best. You would need magic or a crystal ball to make the correct choice every time. It’s fine to do that with a small portion of your portfolio but not the entire portfolio.
Smart beta funds are essentially quant funds with a clear, publicly defined selection method. They work well as part of the satellite portion, not the core. While they may offer lower costs compared to active funds, choosing the right factor—momentum, quality or others—is still guesswork. Globally, studies show hundreds of factor combinations, making selection tricky. In India, factors like momentum and quality have worked well so far.
How do you approach active vs. passive investing?
My portfolio is fully invested in passive funds. I follow a core-satellite approach. The core consists of broad market indices like the total market index, which captures the entire Indian capital market and aligns with the country’s GDP growth. Since I invest for the long term, I hold these indices until I need to sell.
For the satellite portion, I include mid-cap indices because of my long investment horizon. Over time, this combination of total market and market-cap-based indices should help generate returns that outpace inflation. We have been taught that beating the benchmark is the requirement but investors should know that inflation is what should be beaten. Market returns are the only reliable returns, and they come from passive investing.
So, if you want market returns, invest in passive funds. If you’re looking for fun, try active funds. But as our tagline says: “Investment without guesswork.” Passive investing removes guesswork—everything else is speculation.
