 "Jump in passive fund inflows on new launches, EPFO boost")
Inflows into passive funds, which slumped after the change in debt fund taxation in April 2023, have rebounded this calendar year (CY2024). The surge in inflows came on the back of an increase in new index fund and exchange traded fund (ETF) launches and strong performance in some of the categories.
The aggregate inflows into passive funds topped Rs 12,000 crore in the previous two months (March and April 2024), with the total CY2024 net inflows at Rs 37,200 crore. The average monthly inflows in the previous six months were just Rs 3,263 crore.
According to mutual fund (MF) officials, the Employees' Provident Fund Organisation (EPFO) has also contributed to the jump in ETF inflows.
)
In March, ETFs alone had received a net inflow of Rs 10,560 crore. ETFs mostly draw inflows from institutional investors with the EPFO being the largest investor. Back-of-the-envelop calculations using assets under management (AUM) data shows that nearly Rs 9,000 crore ETF inflows went into Nifty 50 and Sensex ETFs offered by SBI Mutual Fund (MF), UTI MF, Nippon India MF, and ICICI Prudential MF. The EPFO investments largely go into these schemes.
Also Read
Mutual fund officials say the surge in index fund inflows was supported by a rise in fund launches and attractive past performances.
"A lot of new funds have come in on the passive side in recent months. We are seeing participation categories, be it market-cap, sector or factor-based funds. The interest is driven by strong performances and good experience in recent years," said Anand Varadarajan, Head - Institutional clients, Banking, Alternate investments and Product strategy, Tata AMC.
Passive funds have been at the top of the one-year and three-year performance charts for some months now. CPSE ETF has given the highest return in the one-year period at 107 per cent. Motilal Oswal S&P BSE Enhanced Value ETF and index fund, along with UTI Nifty 500 Value 50 Index Fund, are also in the top 10. In addition, passive funds were leading in popular categories like midcap and smallcap for the most part of the year.
There has been a surge in new fund offerings (NFOs) in the equity space as the bull run in the equity markets gained momentum. The launches have been higher on the passive side as most large fund houses already have completed their active equity and hybrid product bouquet.
The launches in the equity, hybrid, and passive space surged to 80 in the second half of the last financial year (H2FY24) compared to 47 in the previous six months, according to data from the Association of Mutual Funds in India (Amfi). As of April end, mutual funds had launched 33 passive funds in CY 2024 vis-a-vis 15 launches in the previous four months.
Even as passive fund AUM is only a fraction of active AUM and is still seen as an institutional offering, retail investors have started to warm up to the concept of index-based investing. The traction is largely driven by the two advantages that they have over active funds — low cost and no fund manager risk.
