Passive Funds Will Further Expand With Innovative Strategies, Says Pratik Oswal
"Passives overall have taken off strongly, investors have warmed up to the category as well," said Vandana Trivedi, head of passives and institutional sales at Axis Mutual Fund.
The offerings in the passive investing space have picked up the pace of growth, facilitated by the diversification available in the category that is accelerated by innovation. As strategies, prices, and perspectives change, the number of new fund offerings under the passive fund category has surpassed the sectoral and thematic fund categories.
Passive funds saw the largest number of new fund offers in September, according to AMFI data. With 13 NFO launches, the category comfortably overtook the numbers of offerings in the sectoral and thematic categories.
There were four schemes launched under the Other ETFs category.
The month of August saw launches like Aditya Birla Sun Life Nifty India Defence Index Fund, Bandhan Nifty Bank Index Fund, Kotak Nifty Midcap 50 Index Fund, and more.
With fund houses like Axis, Motilal Oswal, Nippon, and Kotak, along with others launching NFOs, the number of offerings nearly doubled in September. The sharp rise in the number of fund offerings on this scale and at this point in time may be triggered by various factors.
Here are various factors that experts attribute the growing traction to:
Products, Portfolio And Innovation
The market's performance and investors' traction towards innovative products have driven the inflow into the category. This interest is evident in the frenzy around IPOs and NFOs for retail investors.
"AMCs are also trying to create a bouquet of products in passives. Every product helps with stability and builds the business. Investors also want new and interesting products," said Pratik Oswal, head of passives at Motilal Oswal.
The steady climb has been consistent in the space, and there has been paced growth in size over the years.
"The trend was similar last year, but the NFOs could not raise this amount before. Interest in passives has gone up. The combination of awareness, market performance, and success of NFOs has brought in the numbers," he said.
Along with the growth in scale, the category has also evolved to hold a wider spread of offerings as well. The recent launch has tapped into both new spaces and strategies.
"There will be a lot of innovation in the category in strategy and funds. We are launching four small and midcap sector funds next month," Oswal said.
The category is expected to expand with hundreds of funds. Passives is now beyond the traditional spaces and is now thematic, sector-based, according to Oswal.
Numbers, Strategy And Support
The category's assets under management stood at Rs 11.4 lakh crore in September, up from Rs 11.2 lakh crore the previous month. The moderate pace of growth has translated into marginal growth every month.
"Passives overall have taken off strongly; investors have warmed up to the category as well," said Vandana Trivedi, head of passives and institutional sales at Axis Mutual Fund.
"Trajectory of NFOs has been similar to last year. With passives, the simultaneous offering on ETFs also brings the numbers of NFOs up. It's the same investment thesis in two routes," she said.
Smarter investment strategies are being adopted, like growth, value, and momentum, along with others, as various fund houses tap into these strategies for passive funds.
"Factor based investing is growing to be a part of an investor portfolio," said Trivedi.
"Regulatory support has been increasing with schemes like MF Lite. Simplified compliance regulations make this easier for distributors as well. External support from the government is available for ETFs as well," she added.
There are also broader factors like technology and awareness that have brought a larger demand for passive funds.
"Access to technology and digital layers have made accessing more of these funds easier. A huge part of retail investors are now able to access the passive category easily," she said.
