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Passive index funds earn investors' trust in 2019


Mutual fund schemes that follow passive investment strategy such as index and ETF schemes earned the trust of advisors and investors in 2019. The outperformance of passive large cap mutual funds in 2019 contributed greatly to the increase in popularity of the category.

Even the assets managed by the passive mutual fund category reflected the newfound love for the category. The total assets managed (or AUM in mutual fund parlance) by the passive funds, including gold and other ETFs and index funds, stood at Rs 177,181.22 crore as of November 30, 2019.

According to Amfi, Index funds (not including the EFT category) gathered an AUM of Rs 7,717.16 crore till November, 2019. The index fund category came into its own after the re-categorisation of mutual funds by Sebi. So, Amfi data is not available for previous years.

Mutual fund advisors believe that this rise in popularity has been on the back of performance and lower alpha generated by the actively-managed funds.

Large Cap ETFs managed to offer YTD returns of 11.53%, compared to 10.19% offered by actively managed large cap funds. “The AUM rise is solely because of the performance. Many of the passive funds are among the toppers in the large cap category. Passive funds are low cost, so they have an extra edge there,” says Puneet Oberoi, Founder, Excellent Investment Advisorz, a Delhi-based wealth management firm.

Best performing passive large caps and annual returns

Scheme name
1-year returns (%)
ABSL Sensex ETF 15.59%
LIC MF ETF Sensex 15.57%
UTI Sensex ETF 15.52%
SBI ETF Sensex 15.49%
HDFC Sensex ETF 15.49%
Nippon India ETF Sensex 15.47%
ICICI Pru Sensex ETF 15.42%
Tata Index Sensex 15.30%
Kotak Sensex ETF 15.23%
IDFC Sensex ETF 15.21%

For most part of the year, passive large cap schemes were at the top of the return charts. However, some active schemes have taken the top slots in the later part of the year. Even now, 9 out of the top-performing 15 large cap schemes are passive funds.

This year also saw the launch of mid and small cap index funds. Motilal Oswal Mutual Fund launched the Motilal Oswal Nifty Midcap 150 Index Fund and Motilal Oswal Nifty Smallcap 250 Index Fund this year.

“If active managers do not deliver value for the fees they charge, in any case media, intermediaries and investors themselves in this age of information explosion will eventually make their choices. Beyond that we seriously believe in the following drivers for passive investing to take off in India and more so index funds because they are retail investor friendly – liquid, easy to execute and to manage transactions,” says Aashish P. Somaiyaa, MD & CEO, Motilal Oswal Asset Management Company.

AUM of gold ETFs stood at Rs 5,540.40 crore in November 2019, compared to Rs 4,571 In December, 2018. The average YTD returns posed by gold ETFs were 19.10%. Mutual fund advisors attribute the rise in AUM of gold ETFs to the price movement in gold this year. The AUM of other ETFs stood at Rs 1,63,923.66 crore compared to Rs 1,07,363 crore at the end of 2018.

Gold ETFs and returns

Scheme name
Returns
Axis Gold ETF 21.85%
IDBI Gold ETF 21.63%
Nippon India ETF Gold BeES 21.13%
Kotak Gold ETF 21.59%
SBI ETF Gold 21.57%
Invesco India Gold ETF 21.72%
HDFC Gold ETF 20.73%
ICICI Gold ETF 21.51%
ABSL Gold ETF 21.57%

Mutual fund advisors believe passive funds are unlikely to dethrone active funds immediately in India. However, the recent regulatory changes and ensuing market volatility have shifted focus firmly to passive funds in the country.





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