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The demand of passive funds has been growing rapidly.
The MF industry data shows that passive funds now command 17% of the total MF folios. Of the total folios of 21.05 crore in September 2024, passives funds command 3.51 crore folios.
In comparison, passives constituted 2.41 crore out of the 15.71 crore folios in September 2023, i.e. 15%. This also shows that passives folio count has increased by 45% from 2.41 crore to 3.51 crore during this period.
Both, index funds and ETFs, have recorded healthy growth in folio count. Index funds have seen 108% growth in their folio count from 53.88 lakh in September 2023 to 1.12 crore in September 2024.
Non-commodity ETFs, on the other end, have seen a 35% rise in their folio count during this period.
Gold ETF folio count has also seen a 19% rise in their number of folios from 48 lakh in September 2023 to 57 lakh in September 2024.
Mumbai MFD Sandeep Barvarkar of SRS Financial Services believes that the growing trust in passives can be attributed to increasing awareness about passive funds and good performance of the markets. He adds that distributors offering passives as a new and less expensive investment option is another factor that has contributed to increasing popularity of passives.
Another Mumbai MFD Nimish Ashar agrees that increasing awareness has led to their popularity. However, he still thinks that the retail participation in passives is still low in India.
He also attributes growth of index funds to the fact that the majority of active fund managers don't beat their benchmarks over the long term. As a result, they are unable to justify their fund management charges to seasoned investors who are now moving to passives due to their low-cost nature.
When it comes to overall increase in passive folio count, he thinks it is due to NFOs in passive categories by prominent AMCs.
