Why is the dominance of passive mutual funds increasing, 24% increase in AUM?

Last updated:January 17, 2025, 5:08 pm IST

What is Passive Fund: Do you know what passive mutual funds are. After all, why do investors like to invest money in it, because its AUM has increased by 24 percent to Rs 11 lakh crore in 2024 itself.

The number of people investing in passive mutual funds is increasing rapidly.

New Delhi. Passive funds are currently dominating the rapidly growing mutual fund industry. In the year 2024, the portfolio i.e. account number of investors of passive funds including index funds and exchange traded funds has increased by 37 percent, while the total asset under management has increased by more than 24% to cross Rs 11 lakh crore. After all, what are passive funds, whose popularity is increasing so rapidly and why are investors liking these funds so much?

According to data from the Association of Mutual Funds in India (Amfi), mutual fund houses launched a total of 122 new passive fund schemes in 2024. Nippon India Mutual Fund, one of the most prominent players in the fund industry, now has a portfolio of Rs 1.46 crore in passive funds. Its total AUM is Rs 1.65 lakh crore and accounts for 55% of the trading volume of ETFs. Other fund houses like Kotak Mutual Fund, Axis and Motilal Oswal Mutual Fund have also recorded better growth in passive funds.

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Why are passive funds special?
Arun Sundaresan, head of ETFs at Nippon India Mutual Fund, says passive makes an interesting offering. Funds provide pure exposure to different parts of the market, making them true, true label products. There are lots of unique funds, offering very different portfolios and a variety of risk-return profiles for investors to choose from. Due to this diversification, investors find it less risky to invest money here.

Easy for investors to understand
Nippon India Mutual Fund launches 8 new funds in the passive category in the year 2024. It now has 24 ETFs and 21 index funds in the industry. Seeing the increasing interest of investors in choosing this category, other AMCs have also launched many passive funds. Passive funds have also attracted investors as they have low cost structures and are easy to understand, making them an attractive option for both retail investors and fund managers.

What are passive funds?
Passive mutual funds track an index or segment and do not require individual stock selection. Their expenses are also less as compared to active funds. These funds try to replicate the market index, while assessing their risk by tracking the benchmark index. As the stock market performs, they give returns to the investors accordingly. These also have less risk and are considered safer when invested in the long term.