Passive funds in India are transforming investing with their low-cost, market-tracking approach. These funds, including index funds and ETFs, mirror indices like Nifty 50, requiring minimal management. The investment in passive funds is surging.Why the hype? Let’s dive in.
What Are Passive Funds?
Passive funds are investment vehicles that aim to replicate the performance of a specific market index, such as the Nifty 50 or Sensex. They include index funds, bought at NAV, and ETFs, traded on exchanges like NSE. These funds do not involve frequent buying and selling of securities. Instead, they hold the same securities in the same proportions as the index they track.
Benefits: Low Costs and Transparency:
These funds in India shine for their low expense ratios—0.1-0.5% vs 1-2% for active funds, per the Economic Times. This saves lakhs over decades. They also offer predictable returns, matching market gains, and transparency, as holdings mirror public indices. In 2024, passive inflows hit ₹1.5 lakh crore, per IBEF, fueled by SIPs and ETF trading. In addition, they suit beginners and long-term investors.
Leading Passive Fund Providers in India:
- SBI Mutual Fund: Known for its extensive range of passive investment products, SBI Mutual Fund has become a significant player in the Indian market.
- Nippon India Mutual Fund: With a strong presence in the passive fund segment, Nippon India offers various index funds and ETFs catering to different investor needs.
- UTI Mutual Fund: UTI has been a pioneer in introducing passive investment options, thus providing investors with diverse choices in the passive fund category.
These AMCs have contributed to the growth and accessibility of passive investing in India, offering products that cater to a wide range of investment goals and risk appetites.
Risks and Taxation:
These funds in India aren’t risk-free. They follow market dips—a 5% Nifty fall in 2024 hit NAVs, per IBEF. ETFs face liquidity risks if trading volumes are low, widening bid-ask spreads. Taxation aligns with fund type: equity funds face 20% short-term gains (under 1 year), 12.5% long-term (over ₹1.25 lakh); debt funds at slab rates, per SEBI. Moreover, these funds can’t outperform markets, unlike some active funds hitting 18% returns, per AMFI.
Regulatory Support and Future Outlook:
The Securities and Exchange Board of India (SEBI) has introduced guidelines to facilitate the growth of passive funds. These include relaxed rules for mutual funds with a minimum AUM threshold, aiming to reduce compliance burdens and increase competition in the passive fund segment . Looking ahead, DSP Mutual Fund projects that passive funds could command 25-30% of the mutual fund industry’s AUM by 2030.
Who Should Invest and Conclusion:
Passive funds in India suit cost-conscious investors, beginners, or those with 5+ year horizons. Index funds fit SIPs, while ETFs appeal to traders with demat accounts. Check tracking error and expense ratios before investing. In 2024, 45% of AUM came via direct plans, per AMFI, favoring passive options. Learn more at the SEBI website.
In conclusion, passive funds in India offer an easy, affordable path to market returns. With continued regulatory support and growing investor awareness, passive investing is poised to play a significant role in shaping the future of India’s investment landscape.
– Ketaki Dandekar (Team Arthology)
Read more about Passive Funds here – https://www.bajajfinserv.in/passive