Assets of passive funds surge 60% to Rs 4.7 trillion in 2021, shows data

Passive schemes have been gaining prominence in the Indian mutual fund (MF) industry as investors put money into this category for diversification. In the past one year, there has been increased participation in low-cost passive funds.

The data from the Association of Mutual Funds in India shows that net assets under management of passive schemes stood at Rs 4.72 trillion as on December 2021, compared to Rs 2.94 trillion in December 2020 - an increase of 60.5 per cent.

The passive schemes include index funds, exchange-traded funds (ETFs), and fund of funds (FoFs) investing overseas.

The surge in the assets of passive schemes is due to sharp inflows into those categories of funds and the continuous launch of funds. In December, the four index funds and six ETFs launched racked up Rs 6,570 crore on a cumulative basis.

Himanshu Srivastava, associate director-manager research, Morningstar India, says, “Existing funds continue to witness strong net inflows. In December, index funds and other ETFs received net inflows of Rs 4,504.28 crore and Rs 13,550.76 core, respectively. Passively-managed funds in recent times have gained prominence among investors, who have started adding these funds to the portfolio from a diversification perspective.”   

In the past one year, the number of schemes and folios has also gone up for non-active schemes. In December 2021, the total folios stood at approximately 14.9 million, compared to 5.7 million folios in December 2020. Even the number of schemes increased from 168 in December 2020 to 225 in December 2021.

Market participants say several new investors choose passive funds. Even investments in FoFs overseas have gained in importance lately.

In December, gold ETFs and FoFs investing overseas saw net inflows of Rs 313.35 crore and 334.05 crore, respectively.

In the past one year, gold funds and international funds have given returns of around 6.24 per cent and 15.13 per cent, respectively.

“There is considerable reduction in the inflow of gold by Rs 369 crore, from last month’s overall inflow of Rs 683 crore. The volatility of this precious metal is owing to increasing inflation concerns, US Federal Reserve’s expected rate hike, and ongoing cases of the Omicron variant,” says Priti Rathi Gupta, founder, LXME.  

Apart from passive schemes, even active funds and inflows via systematic investment plans (SIPs) have remained robust.

In calendar year 2021 (CY21), equity schemes saw net inflows of around Rs 96,669.97 crore. Inflows via SIPs, however, were at Rs 1.14 trillion in CY21.

Players in the MF industry say that participation in passive schemes will increase further as several new-age players entering the industry are expected to have greater exposure to passive schemes.