As the year 2022 draws to a close, the mutual fund sector has drawn a lot of investors’ interest. Although inflow of funds in almost all categories of fund schemes has surged, a few of them witnessed a higher jump in the past 11 months than others.
Sample this. The assets under management (AUM) of index funds has increased sharply from ₹45,429 crore to ₹1,23,711 crore in 2022.
Overall, equity mutual funds’ AUM increased by 17 percent as it grew from 13.33 lakh crore on December 31, 2021 to ₹15,58,003 crore on November 30, 2022.
The retail participation is seen as a major factor contributing to the growing popularity of index funds. Retail AUMs (equity + hybrid + solution-oriented schemes) in November 2022 stood at ₹20,91,586 crores and the average AUM stood at ₹20,78,259 crore.
At the same time, monthly SIP contribution stood at ₹13,306.49 for Nov 2022, according to the data released by AMFI (Association of Mutual Funds in India).
"The last couple of years have seen a stupendous rise in the number of new investors, among whom a lot of them are investing in index funds owing to their simplicity and lower cost. What we are seeing currently is a great trend wherein the retail investor is continuing to bring in fresh investments in the equity markets in a systematic way with long term objective," says Abhishek Dev, co-founder and CEO, Epsilon Money Mart.
Investment advisors attribute this trend to increasing awareness among retail investors for numerous options of investing in financial markets via mutual funds, particularly through systematic investment plans (SIPs). Also, low-cost fund management and relatively better performance shown by these funds — are a few reasons responsible for this.
“There is increasingly more awareness, and investors have become aware of the merits of index fund and the limitations of active funds,” says Deepesh Raghaw, SEBI-registered investment advisor and Founder of PersonalFinancePlan.
About the future outlook, he believes that the trend is likely to continue, going by what is happening in the other markets.
“Low-cost index funds have become popular and there is no reason why it should be any different in India,” he says.
About this trend (of influx of funds in passive funds), Sridharan Sundaram, a SEBI-registered investment advisor and founder of Wealth Ladder Direct, says, “Large caps can't see multiple jumps just as index funds. They are the well-established mutual fund schemes. In the recent past, some AMCs such as Motilal Oswal and Nippon have created index funds as a separate vertical. Also, index funds have outperformed in the past one year and their returns have outpaced those of active mutual funds, causing the huge popularity of these funds.”
He also mentions that active fund managers have little capacity to generate alpha in the active funds and besides that -- passive funds are considered better because of lower cost incurred in fund management.
|Date||Assets under management|
|Dec 31, 2021||₹45,429 crore|
|Nov 30, 2022||₹1,23,711 crore (up 172%)|
Large cap funds:
|Date||Assets under management|
|Nov 30||₹2,50,691 (13% higher)|
|Dec 31, 2021||₹2,21,834|
|Nov 30, 2022||₹2,50,691|
Total of equity-oriented schemes:
|Dec 31, 2021||₹13,33,618|
|Nov 30, 2022||₹15,58,003|
As one can see from the table above, assets under management (AUM) of index funds rose from ₹45,429 crore to ₹1,23,711 crore, thus increasing by 172% during 11-month period.
Large cap funds’ AUM increased from ₹2,21,834 crore to ₹2,50,691, registering a 13 percent increase. The money invested in small cap funds surged from ₹1,05,880 crore to ₹1,29,947 crore, posting a 23 percent increase during 2022.
Overall, assets under management (AUM) of equity-oriented schemes surged from ₹13,33,618 crore to ₹15,58,003 crore, thus posting a 16.8 percent increase.
However, the above mentioned-trend — despite being noteworthy — may not necessarily stay for a long time.
“From a long-term perspective, well-managed active mutual funds will outperform the index funds, so the massive interest in the latter may not remain for long,” Mr Sridhraran adds.