Index mutual funds have managed to garner regular inflows despite high volatility in the equity market, reported The Economic Times.
The 12-month cumulative rolling inflows in index-based mutual funds jumped to ₹80,755 crore — the highest ever for passive as well as active funds, said the report, citing data from the Association of Mutual Fund of India (AMFI).
The inflows have also been ₹8,585 crore more than that came to exchange-traded funds (ETF), it added.
Till 2021, passive investments through the ETF route had gained disproportionate attention from investors, accounting for nearly double the inflows compared with index-based mutual funds, mentioned the report.
Index MFs drew higher inflows compared to ETFs for the second month in a row in February, even as their monthly inflows for the past six months averaged ₹5,798 crore, it said.
Large-cap equity funds saw inflows of ₹10,513 crore in the past one year.
The traction for index funds can be gauged from the fact that the inflows had reached 52. 2% of the total active equity fund inflows last month, compared with 23. 83% a year earlier and a monthly average of 36. 2% in the past year, according to the ET report.
This has been the prime reason for the outperformance of the assets under management (AUM) of index funds when compared with the passive as well as active fund AUMs, it said.
Large gains
There are a few reasons why index funds are reporting huge gains. Index funds replicate the composition of an underlying index, meaning, these funds buy all securities of an underlying index with the same weight.
Thus, it provides a lot of comfort to the investors by minimising the risk of value erosion from a concentrated bet on a stock or a sector by an active fund manager.
They also carry a low expense ratio as compared with large-cap funds. Another reason is the investor gets an opportunity to take exposure to the equity market in a passive way, without opening a demat account. The number of index funds on offer rose to 163 as of end-February from 78 seen a year earlier.
