Fund houses get active on passive products

Several more are lined up from new entrants such as NAVI MF and established players such as HDFC MF and Mirae MF.

“Underperformance of active funds, lower costs of passive funds, and regulatory and government policies are encouraging investments in passive investing products,” said Abhilash Joseph, business head, Finity.

He added that assets under management of passive investing will expand eight times from the current levels of ₹3 lakh crore to ₹25 lakh crore by 2025, thereby leading to a rush for new products.

Among some of the passive NFOs open include ICICI Prudential Small Cap Index Fund, DSP Nifty Equal Weight 50 ETF, HDFC Nifty Next 50 Fund, ICICI Prudential Consumption ETF, Aditya Birla Nasdaq 100 FoF and Aditya Birla Sunlife Nifty IT ETF.

“There is strong ideation and you can make products with a large number of permutations and combinations in the passive space, leading to a large number of launches,” said Swarup Mohanty, CEO, Mirae Asset Mutual Fund. “After the Sebi rules on the categorisation of mutual funds, a fund house can have only one product in each category, restricting new launches in the active space.”

Wealth managers point out that it is getting hard for large-cap active funds to outperform their benchmarks, which is driving fund houses to offer passive products.

“Globally, as markets have matured, the outperformance of active funds especially in the large-cap space is becoming difficult to an extent that an average fund has been underperforming the benchmark over the long term,” said Kunal Valia, MD, Waterfield Advisors.

Some wealth managers believe the new generation of clients who are coming in through fintech platforms, will prefer passive exchange-traded funds (ETFs) due to the simplicity of buying and holding.

“There is a major increase in the number of new demat accounts opened through fintech apps in the last one year,” said Vijay Kuppa, Founder, Orowealth.

Kuppa believes many such investors would like to buy low-cost products from mutual funds in their demat accounts.

Exchange-traded funds that can be bought only in demat accounts will find favour with this category of investors as they broad-base their portfolios and baskets.

Many such investors will build ETF only portfolios, and hence large fund houses want to have their own ETFs to not lose out on market share.

Financial planners point out that while the most popular passive funds are the Nifty 50 and Nifty Next 50, wealthy investors could also consider Nasdaq 100, IT ETFs, healthcare ETFs, CPSE ETF, Bharat 22 ETF and PSU Bank ETF.