Passive mutual funds have managed to strike a chord with retail investors lately, thus grabbing over 17 percent of market share in 2023 against 1.4 percent in 2015, shows Motilal Oswal AMC survey released Tuesday.
The survey was conducted with more than 2,000 investors who participated from different parts of the country.
The survey also reveals that 61 percent of respondents have invested in at least one passive mutual fund and 53 percent of respondents raised their allocation to passive funds in the last one year.
SIPs over lumpsum
Another observation that has come to light in this survey is that nearly three-fourth investors expressed their preference of systematic investment plans (SIPs) over lumpsum investment.
Around 60 percent investors also said that they rely on social media for information on markets and investments over news outlets in their investment decision making, shows the survey.
One might wonder what are the reasons for the surge in popularity of index funds.
The three key reasons for investors to choose passive mutual funds are low cost, simplicity and market returns.
Also, more than 80 percent of respondents say that they plan to hold their investments for longer than three years.
While sharing the insights of the survey, Pratik Oswal, Head of Passive Funds, Motilal Oswal AMC, said, “Passive funds are widely popular in the U.S. and have over 50 percent market share. We have started seeing similar trends in India over the last few years as well. With a market share of around 17%, we believe that there is ample runway for passive funds ahead.”
Portfolio allocation to passive funds
The survey also shows that nearly half of those investing in passive funds allocate 10-30 percent of their portfolio in terms of allocation.
Around 15 percent of investors mentioned that they have allocated 31-50 percent in passive funds while 12 percent said that they allocated more than 50 percent of their portfolio in passive funds.
On the other hand, 28 percent of investors have lower than 10 percent allocation to passive funds.
Also, investors seem to have preference over index funds and ETFs (exchange traded funds) with 87 percent of respondents investing via index funds versus just 41 percent investing via ETFs.
This is because ETFs are traded on stock markets and investors need to have a demat account whereas investing in index funds does not require a demat account.