If one looks at the past one-year data of mutual funds, it appears to be the season of index mutual funds. To make the most of financial markets via passive investing, investors opt for index funds and consider them to be safe, and lucrative at the same time.
Sample this. In fiscal 2023, 84 new index funds were rolled out, raising the assets under management (AUMs) to ₹1,67,517 crore, an increase of 143 percent, shows the AMFI (Association of Mutual Funds in India) data.
Likewise, other exchange traded funds (ETFs) also caught investors’ fancy as 36 new fund schemes were rolled out, pushing the total AUMs to ₹4,84,277 crore during the year, an increase of 17 percent in 12 months.
An inclination for index funds
A number of studies, time and again, have proved that passive strategies tend to outperform the actively managed investing strategies.
In other words, investing in an index mutual fund is better than choosing the complex financial instruments in a bid to outperform the markets.
In a bestselling book ‘A Random Walk Down Wall Street’, author Burton G. Malkiel puts forward the hypothesis that states that passive strategies, in the long run, add more wealth to investors’ account.
He also writes that in the long run, actively managed mutual funds usually regress towards the mean. Experts argue that passive funds are better when markets are uncertain.
“During times of economic uncertainty, there are too many variables at play that make it difficult for an active fund manager to beat the market index. Hence passive funds such as the index funds are a better bet during times of economic uncertainty,” says Vivek Iyer, partner and leader (financial services risk) at Grant Thornton Bharat.
“Due to uncertain future, it is always better to stick to large-cap or index funds,” says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.
2021-2022
| Category | No of schemes | AUMs ( ₹crore) |
| Index funds | 93 | 68,675 |
| Other ETFs | 124 | 4,11,362 |
2022-23
| Category | No of schemes | AUMs ( ₹crore) | Increase ( ₹cr) |
| Index funds | 177 | 1,67,517 | 98,842 |
| Other ETFs | 160 | 4,84,277 | 72,915 |
Rise in equity funds
Among equity mutual funds, four new flexi cap schemes were launched, thus raising an additional ₹16,252 crore. When it comes to small cap schemes, no new scheme was launched but the total AUMs rose by ₹26,526 crore.
Also, three new mid cap schemes were launched -- adding ₹23,327 crore to the AUMs. The large cap funds did not see any new NFO but their AUMs witnessed a rise of ₹9,570 crore.
2021-2022
| Category | Number of schemes | AUMs ( ₹crore) |
| Flexi-cap | 31 | 2,25,430 |
| Small-cap | 24 | 1,06,857 |
| Mid-cap | 26 | 1,59,928 |
| Large-cap | 31 | 2,26,190 |
2022-2023
| Category | No. of schemes | AUMs ( ₹cr) | Increase ( ₹cr) |
| Flexi-cap | 35 | 2,41,682 | 16,252 |
| Small-cap | 24 | 1,33,383 | 26,526 |
| Mid-cap | 29 | 1,83,255 | 23,327 |
| Large-cap | 31 | 2,35,760 | 9,570 |
In conclusion, we can say that passively managed funds may not perform in the short, or even medium term, but in the long term, these schemes tend to outperform their actively managed counterparts.
This is the reason index funds are popular among retail investors who do not have time or the resources to roll up their sleeves and carry out investing on their own.
