Mutual Funds: Passive Schemes Surge to 16.5% in Four Years

From June 2019 to March 2023, the assets under management (AUM) of passive plans of mutual funds (MFs)—exchange-traded funds (ETFs) and index funds—witnessed a substantial spike. Both ETFs and index funds registered a rise at a compound annual growth rate (CAGR) of 132% and 36% respectively. 

At a rate of 6% in June 2019, the contribution of ETFs and index funds in the MF industry surged to about 16.5% as of March 2023.

In all, the inflows of ETFs and index funds have touched Rs 3.9 lakh-crore in the past four years. 

In the financial year (FY) 2022-23, net inflows in passive schemes recorded was Rs 1.55 lakh-crore as compared to Rs 76,300 crore for the MF industry.

Significantly, the inflows have been driven by Employees’ Provident Fund Organisation (EPFO) and high-net-worth individuals (HNIs). 

HNIs have witnessed their ETF assets rising at a CAGR of 73% over the past four years to Rs 34,000 crore. The HNI share in ETF AUM has spiked to 6% in FY 2022-23 from 3% in FY 2018-19. The ETF AUM per folio for HNIs is more than two times their AUM per folio in the equity segment.

Retail investments into ETF witnessed a 56% rise over the past four years to Rs 9,700 crore in FY 2022-23. However, the share of ETFs in total retail AUM is merely about 1%. In addition, the AUM per folio is comparatively less than one-tenth the exposure to equity schemes.

At the same time, HNIs have witnessed an asset spike of 145% in index funds over the past four years. In the HNI segment, the AUM of index funds is 1.9 times that of ETF AUM.

At Rs 23 lakh, the AUM per folio in this segment is relatively more than ETFs while the number of folios is 4% of the equity fund folios.

Meanwhile, the retail segment too witnessed an asset rise of 82% in index funds over the past four years. It is at 1.8 times the AUM in the ETF segment. The AUM per folio of Rs 50,000 is six times that of ETFs and the number of folios is 4% of the equity fund folios.