Passive mutual funds are funds which replicate a market index like the Nifty or Sensex. These funds invest in the constituents of the selected market index in the same proportion as they are present in the index.In passive index funds, the weightage of all stocks is similar to that of the underlying index. If a stock’s weight in the underlying index changes, the fund manager also buys or sells units to match the weightage of the index.
“As compared to active funds, these funds charge lower fees since they do not need to conduct in-depth research to select stocks. With these funds, you can opt for a cost-efficient way to diversify your portfolio and get exposure to a wide spectrum of market segments,” explained Value Research.
Passive funds have taken the world by storm, gaining market share rapidly across countries, while in India its adoption and acceptance has picked up pace post the pandemic and with government and institutional support along with increased marketing efforts by various asset management companies.
Passive Debt:
Debt has an even distribution amongst index funds and ETFs with 90% of AUM concentrated in Target Maturity Funds and the remainder in Constant Maturity Funds.
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AUM in passive debt is predominantly present in government securities (State and Central Government) followed by corporate securities and liquid securities.
“Debt recorded the highest inflow in the Last Twelve Months (LTM) (Dec-22 to Nov-23) narrowly beating equities with commodities and international passives forming a small portion of the contribution. However, it is to be noted that Rs 30,840 crore (75%) of the total debt category flows in LTM came in the initial four months from December 2022 to March 2023. Taxation regime changed from April 23 onwards removing indexation benets from debt mutual funds resulting in flows virtually drying up for debt schemes,” noted the report.
Debt had positive net flows across all categories in the last twelve months.
New Scheme Launches:
“The increased awareness and continuous engagement have ensured steady money flows to passive schemes. The Ministry of Labor has permitted all provident fund organizations (government and private) up to 15% of all incremental ows to be invested in equity ETFs and Index Funds (Gazette Notication HO/IMC/132/Pattern2015/12937) resulting in strong institutional support to ETFs with the Employee Provident Fund Organization (EPFO) leading the way and other private provident funds and insurance companies onboarding passive funds in their portfolios,..fund. Passive funds are here to stay and in the coming decade, as markets grow and mature, will form an increasing part of investor portfolios.” said the report.
First Published: Feb 05 2024 | 9:21 AM IST