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At Cafemutual Passives Conference (CPC) 2024, experts said that 90% MFDs derive 90% of their business from active funds, which is a very risky business model. They should diversify their offering by selling passive funds to create a strong and future ready business.
This was discussed at the panel discussion moderated by Dhirendra Kumar, CEO, Value Research. Among the panelists were DP Singh, Deputy MD & Joint CEO, SBI MF, Mukesh Agarwal, CEO - Of indices and Data, NSE Indices, Navneet Munot, MD & CEO, HDFC MF, and Prem Khatri, Founder & CEO, Cafemutual.
Here are the key highlights of the session:
- The number of distributors in the market is meager. Not even 25% of the total demand is met and MFDs selling passives are much lower
- 2023 proved to be a historic year in the USA where the passive equity AUM over took the active equity AUM
- In 2023, more than 20% of the total inflows in index funds came from B30 cities, meaning there’s widespread awareness
- Active & passive funds will always co-exist & it is not a competition
- Index funds make the life of a distributor easier since they’re cost-effective and transparent
- Risk management is easily mitigated by a combination of active and passive funds
- If there were no ETFs, the government employees’ money would have never found its way to the equity market
- MFDs need to pay attention to passives as index funds are more transparent and low-maintenance
- Passives are a rapidly growing market with even B30 cities showing good growth
- Investors will learn the benefits of compounding and opt for less risk-prone investment options like passive funds
- The evolving digital landscape will be a strong driver in the distribution model. Over 90% of the transactions at HDFC MF are done digitally, signaling the maturity of the investors and the industry
- Distributors and advisors need to guide people properly on whether they should invest in equity, active, or passive funds
You can watch the entire session HERE
