Assets Under Management AUM

wallet: Be active, give a “passive” edge to your wallet

ADAS, or Advanced Driver Assistance Systems, is the next big thing in automotive. Passive fund NFOs appear to be doing the same job in the investment world, promising uneventful and respectable results on autopilot.

“Generating alpha for active equity fund managers is an ongoing challenge. As the industry matures and reaches scale over the next three years, passive funds will play an important role in investors’ portfolios,” said Vineet Nanda, Founder of Sift Capital. . “Fund houses launch products and build a track record to capitalize when the opportunity arises.” So it’s no surprise that big asset managers are rushing with new fund offerings (NFOs) – both in equities and fixed income. In debt funds, in particular, passive systems reduce costs and offer higher returns than fixed deposits and are therefore attractive to underwriters seeking to reduce the costs of managing money amid growing regulatory restrictions. on the categories. Vineet said large family offices, banks and HNIs invest in programs with at least three years of experience. By launching funds now, large fund companies are preparing to take a bigger slice of the pie in the future.

The passive space, largely on autopilot, is experiencing the fastest growth of any mutual fund category. ETIG research has shown that of the 230 new fund offerings over the past year, no less than 190 come from the passive space. Over the past year, data from industry body AMFI showed that assets under management (AUM) of index funds hit ₹1 lakh crore in 2.8 million folios, down from ₹28,000 crore and 1, 5 million folios a year ago.

Financial planners say passive funds make sense in categories such as large caps where it’s difficult to generate alpha, as regulatory guidelines require funds to allocate at least 80% of the portfolio to the top 100 companies. by market capitalization.

“In large caps, it becomes difficult to beat the benchmark,” said Harshvardhan Roongta, CFP, Roongta Securities. Roongta recommends index funds based on the S&P BSE Sensex and Nifty 50 Equal Weight Index. SBI, the largest fund house by assets, has launched NFOs of five passive funds, three of which are target maturity funds and two passive equity funds that track mid and small cap indices. ICICI Prudential MF has the NFOs of an automotive index fund and an equally weighted 50 Nifty fund, while HDFC MF has Nifty 200 Momentum 30 ETFs and Nifty 100 Low Volatility 30 ETFs.

In early September, HDFC launched Nifty 100 Quality 30 ETFs, Nifty Growth Sectors 15 ETFs and Nifty50 Value 20 ETFs. ABBSLMF has launched a multi-index fund of funds. Edelweiss and Tata MF have also launched target maturity funds.

Financial planners point out that NFOs are often used to attract investors. With the regulator making it difficult to launch new funds in the active space, because a fund house can only have one fund in a category, many fund houses are becoming passive. “In the passive space, a fund house can create multiple categories and offer simple index funds and smart beta products, which is not possible in active funds due to regulatory restrictions,” said Vijay Kuppa, founder of Orowealth.