We don’t have any Nifty 100 or BSE 100 index funds neither do we have any Midcap 150 index funds whereas we do have their counterparts in ETFs. Is this because of low demands ?
Passive funds aren’t all that popular in India. Although, we have over Rs 1 lakh crore in AUM, most of it because of the flow of EPFO money. Bar that, a few retail investors have only recently started taking notice of passive funds. Passive funds are about 4-5% of Indian mutual funds whereas in the US it is around 47%.
But the good thing is, the recent scheme reclassification exercise of SEBI has clearly defined the investible universe for funds. This means that that, large-cap funds can no longer slyly invest in mid and small caps to juice up returns.
In fact, in the past one year (not the right time frame) almost all the large-cap funds have underperformed index funds. So, today it is a no brainer to get rid of large cap funds in your portfolio and replace it with an index funds.
That said, mutual funds are still push products. And the thing with index funds is that AMCs cannot charge higher expenses, which means they cannot pay distributors to push their funds. This means, they will have to grow organically.
But as the markets mature and become more efficient, the shift to passive is inevitable. The question is when? But, fund houses are slowly starting to offer passive funds, although a vast majority of then are Nifty 50 and Nifty Next 50, we should hopefully see more broad market funds soon.