The assets under management (AUM) of passive mutual funds in India have almost reached ₹7-lakh crore as more investors are embracing passive investing due to market volatility and the consistent underperformance of actively managed funds.

 

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Data from the Association of Mutual Funds in India (AMFI) shows that the AUM of passive funds grew by 34 percent to ₹6.97-lakh crore as of March 2023, compared to ₹5.21-lakh crore in March 2022. In contrast, the overall mutual fund industry saw a modest 5 percent year-on-year growth in AUMs in FY23, reaching ₹39.42-lakh crore (₹37.56-lakh crore). Passive investing involves creating a portfolio that mirrors a benchmark index, and includes index funds, exchange traded funds (ETFs), gold ETFs, and international ETFs. Among the passive funds, index funds experienced the highest year-on-year growth, with AUM increasing by 144 percent to ₹1.67-lakh crore as of March 2023. Other ETFs also saw an 18 percent growth in AUM, reaching ₹4.84-lakh crore. The AUM of gold ETFs grew by 18 percent to ₹22,737 crore, and the AUM of international ETFs grew by 2 percent to ₹22,991 crore. While passive investing has been popular in the US, it has gained momentum in India only in recent years, attributed to increasing awareness and the need for diversification.

The underperformance of actively managed equity funds has also led investors to seek alternative investment options. A recent report by Samco Securities-Nielsen revealed that more than two-thirds of investors in the stock market are unable to match the returns of benchmark indices, and 65 percent of market participants are not even aware of their exact stock market returns.

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