Listen to this article
An investor survey report released by Motilal Oswal MF shows that investors are increasingly preferring passives for long term wealth creation. In fact, 82% of investors who participated in the survey are planning to stay invested in passives for over three years.
The increasing trust of investors in passives is also highlighted by the fact that the AUM of passive funds has grown from Rs. 7 lakh crore in March 2023 to Rs. 11.20 lakh crore in September 2024, a 1.5x increase.
Here are other key trends in the passives:
Investor behavior
- 98% of participants are aware about passives; however, only 58% of the participants have a basic conceptual understanding
- 74% participants have index funds in their portfolio. While 43% participants choose to invest only in index funds, 31% choose to invest in both index funds and ETFs
- About 46-48% of participants under the age of 43 choose index funds over ETFs while this number is 35% for participants above 43
- Younger and middle-aged investors alike prefer sectoral indices over commodities and smart beta funds
- While investors of active funds rely more on friends and financial advisors, investors of passives rely more on social media and self-research
- Investors of active funds review their portfolio every month whereas passive fund investors review their portfolios on a quarterly basis
- 40% of passive investors allocate 10-30% of their portfolios in passives. Interestingly, 80% of passive fund investors have increased their allocation in passives in the last one year, especially the Gen Z
- An investor holds 8-9 funds on average in his portfolio with 71% of investors holding 1-10 passives
- Investors anticipate a potential 15% increase in their allocation in passives in near future
Distributor insights
- Only 38% distributors consider themselves to be experts in passives
- 82% distributors favor broad indices
- Distributors look at performance, tracking error and liquidity to shortlist passive funds for clients
- 77% distributors include smart beta or factor funds in their offerings due to their potential to generate higher returns than traditional index funds
- Distributors allocate 10% of their recommended portfolios to passives and plan to increase this allocation by an additional 5% over the next year
