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It is time to take an active look into passive funds, said Prem Khatri, Founder and CEO, Cafemutual at the recent Cafemutual Passive Conference.
Prem shared with us his insights on why passives make more sense for your clients and how it makes business sense for distributors. Let us look at the key insights of the session:
Why passive investments make more sense for investors?
Cost efficiency
Passive investments are cost-effective. They have substantially lower fees than active funds, resulting in savings of a few basis points. Over time, these little savings accumulate, resulting in significant cost savings.
Performance consistency
Passive funds perform consistently and transparently. While they may not generate high returns, they do avoid substantial losses when compared to the active funds.
Transparency
Passive funds maintain complete transparency. Investors know which sectors the fund will invest in, the market cap and the specific stocks that make up the index.
Low maintenance and simplicity
Compared to active funds, passive funds are easier to manage. Active fund managers have to constantly evaluate their fund performance and make necessary corrections. On the other hand, passive fund managers don't need to monitor passive fund.
Why and how passive investments add value to your business?
Client preference
Passive investments are becoming more popular worldwide. Investors today seek transparency and low costs. Passive funds offer access to categories that active funds don't, creating their own demand.
Client acquisition and retention
With passive funds, you may acquire customers more easily because there is no chance of underperformance. Your clients are more likely to stick with you longer if you don't have to respond to inquiries about poor performance.
Derisk and diversify your business
It's important to have a mix of active and passive funds in your portfolio. Relying on a single category is risky. Diversifying helps stabilize your business.
Increase your wallet share
Clients often prefer both active and passive funds. To improve your wallet share, you should provide passive funds to fulfil clients' needs.
Higher profits
Selling passive funds increases your profit share. While the profit margin may not be as high as with active funds, your portfolio and profits will gradually rise over time.
You can watch the complete session by clicking here.
