'New regulations for passive funds to come soon'

Passive funds across equity and debt have become popular in the last two-three years. The investments of HNIs as well as retail investors has gone from 5%-15% in the last three years, according to the speakers at Cafe Mutual Passives Conference, 2022, in Mumbai. Radhika Gupta, CEO, Edelweiss Mutual Fund said that AMFI is working on regulations for passive funds in India which are supposed to be out in the near future.

"Three years ago, passive funds were only ETFs, that too just market cap ETFs. But that has changed. Amfi has also been working on passive regulations that we might see soon. Now there are indo-global themes, smart beta funds, fixed income passives apart from equity passive funds in the market. We are expecting to roll out tactical regulations for these schemes soon which will make the passive space better in India," said Radhika Gupta.

Radhika Gupta added that investors should not look at the scenario as active vs passive but as active and passives.


Pratik Oswal, Head of Passive Funds, Motilal Oswal AMC, spoke about the fast changing passive market in India. He said that India is now moving towards the global levels of passive allocation. "Globally 50-50 was the allocation to passive and active 5-6 years ago while India had zero percent allocation to passives and even to international funds. That is changing now. Our internal study shows that while the Indian market has done about 13% in the last 10 years, an average investor has made only 7-8%, which is less than the debt funds. This is called the behavior gap. I think we can use passive strategies to bridge this gap in future," says Pratik Oswal.

Radhika Gupta also spoke about how passive schemes like Bharat Bond is now being advised by wealth managers on Small Case, by RIAs, by platforms like ET Money.

Wealth managers like Shiv Gupta, founder and CEO, Sanctum Wealth and Mukesh Kalra, CEO ET Money, said that the constant innovations in the passive investment space have given investors a lot of choice and that is reflected in the increasing AUM of passive funds. "Passive investing has gone from 5% to 15% in AUM among HNIs. We believe that good asset allocation can grow your money and tactical calls are also important. So active picking is important but a balanced portfolio should have 30-40% passive funds in it," says Shiv Gupta.

However, for small portfolios and retail investors, all these experts believe that passive funds, including quant funds, target maturity funds, should be used a balancing factor alongside active schemes.