Mutual fund houses are rushing to load their armoury with passive funds before the pure play passive fund focused Jio Financial-Blackrock combine launch its business soon.
In last nine months, 87 passive schemes were launched against 51 in the whole of last year.
Mop-up through passive funds have more than doubled to ₹7,472 crore in September quarter against ₹3,415 crore in the previous two quarters (March and June) put together, according to AMFI data.
The number of issuance was also substantially higher at 39 in September quarter against 18 NFOs in June quarter and 30 in March quarter.
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Capital market regulator SEBI gave in-principal approval to the new player launch mutual fund business subject to fulfilment of certain conditions and also notified MF Lite regulations.
Smart Beta strategy
After promising to deliver alpha in actively managed funds, MFs are wooing investors with innovative smart beta passive funds instead of index tracking plain vanilla funds.
Passive funds launched by large fund houses such as HDFC MF, Nippon MF, Birla MF and Tata MF have become an instant hit with investors. The fund houses either pick up top 10 or 30 stocks of a popular index to deliver smart beta.
Tata MF has launched one of its kind Tata Nifty Capital Markets Index Funds. The newly introduced Nifty Capital Market index will consist of 20 companies from Nifty 500 index.
Nippon Life India Asset Management recently launched Nifty 500 Equal Weight Index Fund and Nifty 500 Momentum 50 Index Fund. Tata MF launched a passive tourism fund, while DSP MF came out with a fund that invests only in top-10 companies of Nifty index.
High risk, low cost
Investing in concentrated index funds will carry higher risk though it can deliver better return in a bull market.
Anand Vardarajan, Chief Business Officer, Tata Asset Management said the country is witnessing a shift particularly among new generation who are not going to yesteryear savings vehicles but considering financial markets for investment.
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Investors should not be perturbed by the recent fall in market when they are investing for next five years as it is very natural for markets to move up or come down a bit, he added.
Anil Ghelani, CFA, Head of Passive Investments, DSP MF said, investor interest is steadily increasing and financial advisors are also finding it useful to include passive funds in their recommendations.
“Passive fund carries the risk of the underlying index it aims to track and the risks associated with broader equity markets,” he said.