Passive Investing Boom: DSP’s Anil Ghelani Foresees ETFs and Index Funds Capturing 30% of Mutual Fund Market Share
In a noteworthy shift within India’s mutual fund landscape, the market share of low-cost passive funds is poised for substantial growth, as indicated by Anil Ghelani, the Head of Passive Investments at DSP Mutual Fund. Currently, passive funds, including ETFs and index funds, hold a 17% market share of the overall mutual fund assets under management (AUM) in India. Ghelani forecasts that this figure could escalate to 30% over the next five years, marking significant evolution in investment behavior among Indian retail investors. This transformation signals a foundational change in how wealth is constructed, with passive strategies increasingly being recognized as essential components of long-term investment portfolios.
The growth of passive funds appears to be influenced by a shift in investor focus from chasing high returns through active management to prioritizing prudent asset allocation aligned with individual life goals. This change is expected to support a more significant inclusion of passive strategies as core components of investors’ portfolios, while active funds may play a complementary role, particularly engaging in smaller-cap and niche market segments where active management still holds promise for alpha generation. The broad appeal of passive investing is most pronounced in the large-cap segment, where the potential for consistent performance against benchmark indices is becoming increasingly reliable.
The current trend of launching multiple indices by Indian exchanges is a reflection of the growing sophistication of the market, yet it brings the caveat that not every new index necessitates an accompanying ETF or index fund. A discerning approach is essential; fund managers are urged to evaluate whether new products genuinely meet investor needs without complicating the decision-making process in an already crowded marketplace. This underscores the importance of simplicity in investment strategies. Investors are encouraged to prioritize broad-based market-cap indices for core portfolio allocations, reserving thematic or sector-based investments for more advanced, applied strategies.
When choosing between ETFs and index funds, factors such as liquidity, execution, and the underlying index’s characteristics should be pivotal in decision-making. For those prioritizing convenience and systematic investing, index funds may be more suitable, while experienced investors may prefer the flexibility of ETFs. Regardless of the product chosen, a disciplined, low-cost approach remains paramount, particularly for long-term goals such as child education. Investors should adopt a strategic mindset, maintaining patience and adhering to their chosen asset allocations to mitigate the behavioral risks that can accompany market shifts.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)