61% of mutual fund investors have invested in at least one passive fund: Study

Motilal Oswal Asset Management Company (MOAMC)—which offers the widest range of passive funds in India with more than Rs 17,000 crore in AUM across 30 index funds, ETFs, and FoFs—has found that passive funds have taken centre stage in India over the last few years, and their market share has jumped from 1.4% of AUM in 2015 to over 17% today.

The survey sought the views of more than 2,000 investors from across the country on the usage and attitude towards passive funds. The study also highlights investors’ preference for SIPs over lump sum investing, an affinity for index funds, and reliance on social media over news outlets in their investment decision-making.  

Navin Agarwal, MD & CEO of Motilal Oswal Asset Management Company, said, “The demand for passive investing has grown exponentially over the past few years, which reflects in AUM growth of 8.5x in last five years at a CAGR of 54%. Our commitment to innovation and education will continue to support the future of passive funds in India.” 

According to the survey findings, 61% of investors have invested in at least one passive fund, underscoring the fast-growing adoption of passive funds in India. Revealing the reason investors choose to invest in passive funds, the survey point out that 57% of respondents prefer these funds due to their low-cost nature as the biggest reason, followed by 56% of respondents who feel that the simplicity of these funds is what pulls them to invest in them, and more than 54% investors do so for the fact that they tend to deliver market returns. 

Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company Ltd said, “Passive funds are widely popular in the U.S. and have over 50% market share. We have started seeing similar trends in India over the last few years as well. With a market share of around 17%, we believe that there is ample runway for passive funds ahead. This survey is a first of its kind in India and provides insights into how investors think about passive funds. It also helps shed some light on the thought process behind investment decisions of Indian investors.” 

Exponential AUM Growth in Passive Funds: The mutual fund industry has seen a major shift towards Passive Funds over the last five years. At the end of FY18, the AUM of all passive funds put together stood at around Rs 83,000 crore. It has grown to more than Rs 7 lakh crore as of March 2023, rising 8.5x in just 5 years at a CAGR of 54%. 

Key highlights: 

• 61% of respondents say they have invested in at least 1 passive fund 

• The top 3 reasons for investing in passive funds turned out to be low cost, simplicity, and  market returns 

• 53% of respondents say they increased their allocation to passive funds in the last 12 months 

• 3 in 4 respondents prefer to invest using SIPs, underscoring the importance of disciplined  

investing for wealth creation over the long term 

• Around 60% of respondents said that they rely on Social Media for information on markets  

and investments 

• More than 80% of respondents say they plan to hold their investments for more than 3 years 

Investors Prefer SIPs over lump sums, social media over news outlets: More than 75% of respondents said that they preferred to invest regularly every month using SIPs, while only 42% said that they leaned towards Lumpsum investment. Interestingly, the preference for SIPs was equally strong among those who invest in passive funds and those who do not. This universal preference for SIPs shows they are simple yet very effective in long-term wealth creation. The more disciplined approach to investing has also proven to tide over market volatility, allowing investors to cut through the noise. As of March 2023, monthly SIP inflows crossed the Rs 14,000 crore mark for the first time, staying above the Rs 10,000 crore mark for 19 months straight. 

The survey also reveals that more than 60% of respondents get information on markets and investments from Social Media platforms like Twitter, Instagram, etc. On the other hand, only around 26% follow traditional news/media outlets for information related to investing. There was a higher preference for social media in those who do not invest in passive funds, while the passive fund investors turned more towards newsletters and blogs online.