Passive funds show interesting trends in March 2024

12 Apr 2024 , 10:20 AM

The India passive funds story has taken off in a big way since the pandemic days of early 2020. As active funds failed to beat the indices on a consistent basis, the sharply lower cost of index ETFs started to make a lot of sense to investors. In our passive funds analysis for March 2024, we first look at the best index funds / ETFs on a returns basis and later also look at the major fund of funds (FOFs) on returns basis; before look at the accretion of passive fund folios passive fund AUM over a 1-year period.

HOW INDEX FUNDS AND INDEX ETF PERFORM TILL MARCH 2024

Here is the overall universe of active and passive index funds and ETFs (except FOFs) in term of returns on a 1 year basis and returns since inception. We have considered regular plans in this case, and the ranking below is of the best 20 funds on returns since launch.

Passive Fund Scheme Name	1 Year (%) Returns		Launch (%) Returns	Daily AUM (₹ Crore)
ICICI Prudential Nifty PSU Bank ETF	97.04	91.35		52.00
Motilal Oswal S&P BSE Enhanced Value Index Fund	95.16	67.21		361.63
Motilal Oswal S&P BSE Enhanced Value ETF	98.15	65.87		57.11
HDFC NIFTY Smallcap 250 ETF	71.47	57.84		240.96
HDFC NIFTY Midcap 150 ETF	62.13	51.50		23.73
ICICI Prudential Nifty Auto Index Fund	73.31	44.49		80.37
Edelweiss Nifty Midcap150 Momentum 50 Index Fund	73.76	42.04		235.64
HDFC NIFTY200 Momentum 30 ETF	71.92	40.62		25.21
Mirae Asset Nifty 100 Low Volatility 30 ETF	38.91	40.47		9.34
Edelweiss Nifty Smallcap 250 Index Fund	70.12	39.88		43.62
SBI Nifty Smallcap 250 Index Fund	69.96	39.68		665.66
ICICI Prudential Nifty 200 Momentum 30 ETF	71.96	39.42		71.86
Tata Nifty Midcap 150 Momentum 50 Index Fund	73.11	38.61		229.78
ICICI Prudential Nifty Infrastructure ETF	63.76	37.58		121.38
Aditya Birla Sun Life Nifty 200 Momentum 30 ETF	72.49	37.38		48.71
ICICI Prudential Nifty 200 Momentum 30 Index Fund	69.99	36.98		169.10
Nippon India Nifty Smallcap 250 Index Fund	69.52	36.87		1,195.91
SBI Nifty Midcap 150 Index Fund	60.89	36.30		371.43
Nippon India Nifty Auto ETF	75.07	34.26		158.02
Bandhan Nifty200 Momentum 30 Index Fund	70.27	34.25		65.87

Data Source: AMFI

The family of passive funds have a total of 342 funds across equity generic index funds, equity sectoral index funds, and debt funds and ETFs. These 342 passive funds manage total AUM of ₹9,21,566 Crore as of April 10, 2024. Over a 1 year period, the average return of these 342 passive fund stands at an impressive 31.82%, despite including equity and debt index funds. If you look at these 342 funds in terms of returns since inception, then the average returns stand at an average of 15.91% CAGR, which is still very impressive.

HOW FUND OF FUNDS (FOF) PERFORMED TILL MARCH 2024

Here we look at the overall universe of active and passive fund of funds (FOFs), which has been growing in acceptance in India. We look at returns on a 1 year basis and returns since inception. We have considered direct plans in this case as data is available, and the ranking below is of the best 20 funds on inception returns.

Passive Fund Scheme Name	1 Year (%) Returns		Launch (%) Returns	Daily AUM (₹ Crore)
Axis NASDAQ 100 FOF	39.10	38.56		169.53
Mirae Asset Global X AI & Technology ETF FOF	41.51	36.89		344.73
Mirae Asset NYSE FANG+ ETF FOF	101.95	29.09		1,636.89
ICICI Prudential India Equity FOF	51.68	27.70		108.86
Axis Silver FOF	10.67	27.70		38.95
HDFC Silver ETF FOF	10.45	27.53		75.49
UTI Gold ETF FOF	18.17	26.01		93.01
Mirae Asset Equity Allocator FIF	39.79	25.42		696.60
Motilal Oswal Gold and Silver ETFs FIF	15.38	24.75		56.88
Aditya Birla Sun Life Multi – Index FOF	36.74	24.40		12.77
Mirae Asset Nifty India Manufacturing ETF FOF	56.98	24.34		75.38
Edelweiss Gold and Silver ETF FOF	13.07	24.31		88.28
Motilal Oswal Nasdaq 100 FOF	42.98	23.97		4,733.89
Edelweiss US Technology Equity FOF	56.22	23.01		2,255.30
ICICI Prudential Strategic Metal and Energy Equity FOF	9.58	22.36		105.56
Nippon India Passive Flexicap FOF	42.19	21.86		226.29
Nippon India Asset Allocator FOF	37.15	21.65		215.99
ICICI Prudential BHARAT 22 FOF	75.01	21.50		1,079.12
Mirae Asset S&P 500 Top 50 ETF FOF	59.98	21.36		586.18
Axis Equity ETFs FOF	40.81	19.17		18.59

Data Source: AMFI

The family of fund of funds (FOFs) have a total of 111 funds across equity, debt, domestic and international FOFs. These 111 passive fund of funds (FOFs) handle total AUM of ₹97,561 Crore as of April 10, 2024. Over a 1 year period, the average return of these 111 fund funds (FOFs) stands at an impressive 23.59%, since this includes equity and debt index FOFs, as well as domestic and international FOFs. If you look at these 111 FOFs in terms of returns since inception, then the average returns stand at a more subdued 11.92% CAGR, which is still fairly impressive.

PASSIVE FUND FOLIO GROWTH: MARCH 2024 OVER APRIL 2023

One can evaluate the growth of passive funds in India; either in terms of folios or AUM. While folios represent the investor accounts, the AUM is a mix of flows and market value appreciation. Let us first look at growth in folios. There are 13 categories of passive funds as identified by AMFI, but the “Other domestic ETFs”, category was dropped due to zero folios. The table below compares the folio numbers of these 12 categories of passive funds as of end March 2024 over April 2023. This is the period for which data is available and while it may be slightly short, the credibility of such comparisons will build over time.

Passive Mutual Fund Schemes (Folios)	Folios Mar-24 (in Numbers)	Folios Apr-23 (in Numbers)	Growth (%)
Silver ETF	1,99,276	75,891	162.58%
Fund of funds investing overseas in Passive Funds	7,85,875	3,74,286	109.97%
Equity oriented Index Funds (Domestic Index Funds)	71,07,136	35,59,102	99.69%
Equity oriented ETFs (International ETFs)	4,07,895	3,21,986	26.68%
Other Index Funds	68,920	57,565	19.73%
Equity oriented ETFs (Domestic ETFs)	1,10,93,896	98,45,185	12.68%
Income/Debt Oriented ETFs	20,66,858	18,67,689	10.66%
Gold ETF	50,60,791	47,12,199	7.40%
Income/Debt Oriented Index Funds (TMIF)	1,51,292	1,49,954	0.89%
Equity oriented Index Funds (International Index Funds)	2,34,036	2,38,189	-1.74%
Income/Debt Oriented Index Funds (Other than TMIF)	15,162	15,613	-2.89%
Fund of funds investing overseas in Active Funds	7,71,413	9,41,061	-18.03%
Total of Passive Funds	2,79,62,550	2,21,58,720	26.19%

Data Source: AMFI (TMIF is target maturity index funds)

The above table compares the folios at the end of March 2024 with the folios at the end of April 2023 (11-month growth). Here is what we infer.

• Passive fund folios grew by 26.19% between April 2023 and March 2024. That is a lot of investor intensity in last 11 months. The total folios of passive funds stand at nearly 279.63 Lakhs (272.54 Lakhs last month), which is 15.72% of overall mutual fund folios.
• Which is the specific category of passive fund that led the growth. The leader was silver ETFs, a recent addition, which saw folios growing 162.58% over April 2023. That is fantastic growth in 11 months, albeit on a relatively low base.
• The other two categories of funds that saw good traction were FOFs investing in passive global funds that has grown folios by 109.97% over April 2023 and equity oriented domestic index funds that showed growth of 99.69% between April 2023 and March 2024. Equity oriented international ETFs also grew 26.68% in the same period.
• Which were the laggards in this folio growth list? On the downside, the FOFs investing in overseas active funds continued to see a sharp fall in folios by -18.03% while the income oriented index funds (other than TMIFs) and the equity oriented international index funds saw contraction of -18.03% and -2.89% respectively in march 2024 over April 2023. Passive funds are surely picking up steam, as far as the retail intensity is concerned, as is reflected in the growth in folios over the last 11 months.

As of March 2024, out of the 12 categories of passive funds with active folios, 9 categories saw accretion in folios over April 2023 while 3 categories saw contraction in folios.

PASSIVE FUNDS AUM: MARCH 2024 OVER APRIL 2023

The table below captures the AUM of the 12 categories of passive funds with active folios as of the close of February 2024. Unlike folios, AUM is a mix of fresh flows and value accretion with rise in the market. The AUM may not be a good measure of retail intensity, but we still look at this measure as this is what determines the heft of passive funds.

Passive Mutual Fund Schemes	AUM Mar-24 (₹ Crore)	AUM Apr-23 (₹ Crore)	Growth (%)
Silver ETF	4,641.66	1,785.73	159.93%
Equity oriented Index Funds (Domestic Index Funds)	98,014.57	54,355.39	80.32%
Fund of funds investing overseas in Passive Funds	8,228.36	5,427.23	51.61%
Equity oriented ETFs (International ETFs)	11,045.73	7,975.68	38.49%
Gold ETF	31,223.69	22,949.98	36.05%
Equity oriented ETFs (Domestic ETFs)	5,52,142.70	4,08,915.17	35.03%
Equity oriented Index Funds (International Index Funds)	4,439.37	3,396.94	30.69%
Income/Debt Oriented ETFs	96,170.01	83,483.85	15.20%
Income/Debt Oriented Index Funds (Other than TMIF)	14,770.09	14,385.82	2.67%
Fund of funds investing overseas in Active Funds	17,485.01	17,211.62	1.59%
Income/Debt Oriented Index Funds (TMIF)	93,103.62	95,319.83	-2.33%
Other Index Funds	3,329.83	3,635.52	-8.41%
Total of Passive Funds	9,34,594.63	7,18,842.76	30.01%

Data Source: AMFI (TMIF is target maturity index funds)

We have compared AUM of the 12 passive fund categories (with active folios) for March 2024 over April 2023. The share of passive funds in AUM stood at 17.5% as of March 2024; sharply higher than 16.65% as of February 2024 and 16.76% as of January 2024). Amidst the strong growth traction, here is what we read from the AUM data of passive funds.

• AUM of passive funds grew 30.01% in March 2024 over April 2023. Much of the accretion in the AUM has obviously come from Nifty and Sensex touching all-time highs, although the flows are tepid. However, passive funds saw revival of interest in March.
• Index ETF AUM has touched ₹6.64 Trillion and it has emerged as the single largest contributor to the overall mutual fund AUM. In fact, the equity index ETF AUM alone is nearly equal to the AUM of liquid funds and flexi-caps combined. The second best category of liquid funds only has AUM of ₹3.63 Trillion; after the sharp sell-off in liquid funds in March 2024. Low cost structures have driven flows into passive funds & ETFs.
• The leader of the pack in terms of AUM growth in March 2024 over April 2023 was led by silver ETFs, a recent addition, which saw AUMs growing by 159.93% over April 2023. That is stupendous growth in just 11 months, albeit on a low base. The other categories of passive funds that saw good traction in the last 11 months were domestic equity index funds at 80.32%, FOFs investing in overseas passive funds at 51.61%, international equity ETFs at 38.49%, and gold ETFs at 36.05%.
• On the downside, miscellaneous index funds saw AUM contraction of -8.41% while Target Maturity Index Funds (TMIF) saw AUM contract by -2.33%. Out of the 12 categories of passive funds with existing folios, 10 categories of passive funds saw AUM accretion while 2 categories saw AUM contraction.

The growth in passive AUM has come on the back of index accretion, as the Nifty and Sensex touched new lifetime highs during the month. In the last few months, active funds and alpha hunting was the flavour, but March saw a reversion to passive funds. In a volatile market, these passive funds do make for a delectable idea.

WHY PASSIVE FUNDS WILL SEE BETTER TRACTION IN THE MONTHS AHEAD

Passive funds may have seen tepid inflows in recent months, but March has seen a sharp revival in investor interest in passive funds once again. In India, the share of passives is much lower than the other countries, so we may have just scratched the surface. Big names in the market like Zerodha and Jio-Blackrock are planning a pure passive-only approach in India. As John Bogle of Vanguard summed up, “The long term focus of index funds is a counterweight for the short-termism of market participants.” That is why passive investing will have a perennial market.