Index funds see growing retail participation, boost SIP flow contributions

Inflows via SIP cross Rs 1,000 cr; Share in total SIP inflows nears 5%

With growing retail participation, index funds are now making meaningful contributions to flows coming through the systematic investment plan (SIP) route.

 

Their share now accounts for almost 5 per cent of the monthly SIPs, up from 3.5 per cent a year ago.

 

Index funds have managed to increase their share amid a twofold rise in SIP inflows from Rs 556 crore in September 2023 to Rs 1,158 crore in September 2024. SIP inflows had first crossed the Rs 1,000-crore mark in July 2024.

 

The low-cost mutual fund (MF) space has been at the centre of the new fund offering (NFO) rush in the ongoing calendar year. This comes as fund houses took the passive route to launch innovative offerings.

 

 

According to MF officials, the surge in retail participation is a result of growing awareness amid a slew of launches.

 

“The growing retail footprint can be attributed to a combination of factors. The awareness on index funds has grown significantly over the last year with several fund launches. There are now AMCs that only focus on index funds. The performance of index funds also stood out in some categories. In addition, a lot of investors are now coming directly and index funds are a popular product in the direct space,” said Pratik Oswal, chief of business, passive funds, Motilal Oswal AMC.

 

In the last one year (October 2023-September 2024), MFs have launched 56 index funds. These schemes together collected Rs 9,812 crore during the NFO period.

 

According to Vishal Jain, Chief Executive Officer, Zerodha Fund House, there is a demand for differentiated offerings from certain segments which has resulted in a slew of successful launches in the space in recent months. "Overall, there has been an uptick in interest in passive funds the last few years, likely due to growing difficulty in finding the next winner," he said.

 

Index funds and exchange-traded funds (ETFs) have been dominating the equity fund returns chart in the one-year period.

 

In the largecap space, Nifty Next50, Nifty Alpha 50 and Nifty200 Momentum 30 index funds and ETFs top the one-year returns table.

 

In the small and midcap space, only a few active offerings are ahead of index funds in the one-year period. However, active fund performance has been better in longer periods.

 

The growing retail interest is also evident from the investment account data.

 

The number of active investment accounts, or folios, in various index funds more than doubled to 11.2 million in the last one year. The folio count had gone up by 85 per cent in the previous 12 months.

 

Assets under management (AUM) grew 47 per cent to Rs 2.7 trillion during the October 2023-September 2024 period.

 

Passive funds have been gaining higher traction in the last few years. This is because they have two advantages over active funds — low cost and no fund manager risk.

 

They gained investor interest, especially after Covid.

 

The passive AUM, which stood at Rs 1.6 trillion at the end of March 2020, has grown over sevenfold to Rs 11.5 trillion.