Passive funds show sustained revival in April 2024

26 May 2024 , 10:52 PM

Even if you were to understate the performance of passive funds in India, they have stood out since the pandemic days. As active funds struggled with stock selection challenges, kurtosis, and the bias of fund managers; index outperformance of fund managers became more prominent. Not surprisingly, the result was a huge shift to passive funds. The India passive funds story can be divided into 47 segments viz. index funds, index ETFs, commodity ETFs and fund of funds (FOFs). Today, passive funds account for more than 16% of the AUM of the mutual fund sector overall and has been growing rapidly. The AMFI data on a monthly basis, focuses in depth on the passive funds at a granular level. Here, we look at passive funds (index funds, ETFs and FOFs) in terms of past returns, category wise AUM and category wise folios growth.  .

HOW INDEX FUNDS AND INDEX ETF PERFORMED IN APRIL 2024

How did the overall universe of active and passive index funds and ETFs (except FOFs) perform in term of returns on a 1 year basis and since inception. We have considered regular plans data for the rankings. There are 345 index funds and ETFs overall in the mutual fund universe in India, with a combined AUM of ₹9,42,193 Crore. Here the Top-20 funds on returns since launch.

Passive Fund Scheme Name	1 Year (%) Returns		Launch (%) Returns	Daily AUM (₹ Crore)
UTI Nifty 500 Value 50 Index Fund	97.80	90.97		296.72
ICICI Prudential Nifty PSU Bank ETF	86.36	81.41		66.13
Kotak Nifty Smallcap 50 Index Fund	70.77	68.87		60.02
Motilal Oswal S&P BSE Enhanced Value Index Fund	99.39	67.82		569.52
Motilal Oswal S&P BSE Enhanced Value ETF	102.47	66.71		77.99
HDFC NIFTY Smallcap 250 Index Fund	61.38	63.79		177.11
HDFC NIFTY Midcap 150 Index Fund	56.89	58.27		145.70
HDFC NIFTY Smallcap 250 ETF	63.45	54.86		289.71
HDFC NIFTY Midcap 150 ETF	58.85	51.29		33.84
ICICI Prudential Nifty Auto Index Fund	69.89	47.85		101.55
Edelweiss Nifty Midcap150 Momentum 50 Index Fund	77.66	47.30		336.71
HDFC NIFTY200 Momentum 30 ETF	75.55	45.72		43.93
ICICI Prudential Nifty 200 Momentum 30 ETF	75.61	44.04		160.56
Tata Nifty Midcap 150 Momentum 50 Index Fund	77.18	43.59		308.98
Aditya Birla Sun Life Nifty 200 Momentum 30 ETF	76.17	42.17		58.94
ICICI Prudential Nifty 200 Momentum 30 Index Fund	73.55	41.56		247.34
Bandhan Nifty200 Momentum 30 Index Fund	73.78	39.14		86.05
HDFC S&P BSE 500 Index Fund	37.32	39.10		117.95
Edelweiss Nifty Smallcap 250 Index Fund	62.18	38.90		52.55
SBI Nifty Smallcap 250 Index Fund	62.10	38.80		749.86

Data Source: AMFI

The family of passive funds have a total of 345 funds across equity generic index funds, equity sectoral index funds, and debt funds and ETFs. These 345 passive funds manage total AUM of ₹9,42,193 Crore as of May 24, 2024. Over a 1 year period, the average return of these 342 passive fund stands at an impressive 30.86%, despite including equity and debt index funds. If you look at these 345 funds in terms of returns since inception, then the average returns stand at an impressive 17.08% on a CAGR basis.

HOW FUND OF FUNDS (FOF) PERFORMED IN APRIL 2024

How is the overall universe of active and passive fund of funds (FOFs), both domestic and global, in term of returns on a 1 year basis and since inception. We have considered regular plans in this case. There are 112 fund of funds (FOFs) overall in the mutual fund universe in India, with a combined AUM of ₹75,552 Crore. Here the Top-20 fund of funds (FOFs) on returns since launch.

Passive Fund Scheme Name	1 Year (%) Returns		Launch (%) Returns	Daily AUM (₹ Crore)
Axis NASDAQ 100 FOF	38.03	38.49		171.73
Mirae Asset Global X Artificial Intelligence ETF FOF	37.70	34.96		329.87
HDFC Silver ETF FOF	24.36	31.10		85.93
Axis Silver FOF	23.53	30.89		41.27
Mirae Asset Nifty India Manufacturing ETF FOF	63.03	27.71		87.73
Mirae Asset NYSE FANG+ ETF FOF	71.76	26.01		1,560.02
Edelweiss Gold and Silver ETF FOF	20.14	25.52		92.69
Mirae Asset Equity Allocator FOF	37.30	25.47		729.33
Aditya Birla Sun Life Multi – Index FOF	37.22	25.32		14.12
Motilal Oswal Gold and Silver ETFs FOF	19.25	24.48		69.25
UTI Gold ETF FOF	17.95	23.87		100.70
Motilal Oswal Nasdaq 100 FOF	36.67	23.23		4,810.63
ICICI Prudential BHARAT 22 FOF	75.68	22.09		1,342.39
Nippon India Passive Flexicap FOF	38.62	21.42		234.00
Edelweiss US Technology Equity FOF	42.97	21.01		2,206.47
Nippon India Asset Allocator FOF	34.32	20.69		227.59
Invesco India – Invesco EQQQ NASDAQ-100 ETF FOF	39.13	19.80		392.37
Axis Equity ETFs FOF	38.31	19.78		19.43
Nippon India Nifty Next 50 Junior BEES FOF	69.12	19.59		405.67
Kotak Silver ETF FOF	22.42	19.07		23.10

Data Source: AMFI

The family of fund of funds (FOFs) have a total of 112 funds across equity, debt, domestic and international FOFs. These 112 passive fund of funds (FOFs) handle total AUM of ₹75,552 Crore as of May 24, 2024. Over a 1 year period, the average return of these 112 fund of funds (FOFs) stands at an impressive 22.27%, since this includes equity and debt index FOFs, as well as domestic and international FOFs. If you look at these 112 FOFs in terms of returns since inception, then the average returns stand at a more subdued 11.13% CAGR, which is still above average.

PASSIVE FUND FOLIO GROWTH: APRIL 2024 OVER APRIL 2023

One can evaluate the growth of passive funds in India; either in terms of folio growth or AUM growth. While folios represent the investor accounts, the AUM is a mix of flows and market value appreciation. Let us 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 April 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 Apr-24 (in Numbers)	Folios Apr-23 (in Numbers)	Growth (%)
Silver ETF	2,20,436	75,891	190.46%
Equity oriented Index Funds (Domestic Index Funds)	75,09,935	35,59,102	111.01%
Fund of funds investing overseas in Passive Funds	7,52,314	3,74,286	101.00%
Equity oriented ETFs (International ETFs)	4,32,486	3,21,986	34.32%
Other Index Funds	71,852	57,565	24.82%
Equity oriented ETFs (Domestic ETFs)	1,12,58,767	98,45,185	14.36%
Income/Debt Oriented ETFs	21,18,038	18,67,689	13.40%
Gold ETF	51,83,711	47,12,199	10.01%
Equity oriented Index Funds (International Index Funds)	2,38,891	2,38,189	0.29%
Income/Debt Oriented Index Funds (TMIF)	1,47,588	1,49,954	-1.58%
Income/Debt Oriented Index Funds (Other than TMIF)	15,130	15,613	-3.09%
Fund of funds investing overseas in Active Funds	7,59,809	9,41,061	-19.26%
Total of Passive Funds	2,87,08,957	2,21,58,720	29.56%

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

The above table compares the folios at the end of April 2024 with the folios at the end of April 2023 (12-month growth). Here is what we infer.

• Passive fund folios grew 29.56% yoy between April 2023 and April 2024. That is a lot of investor intensity in last 12 months. The total folios of passive funds stand at 287.09 Lakhs folios compared to 279.63 Lakh folios and 272.54 Lakh folios in last 2 months.
• Which is the specific category of passive fund that led the growth. The leader was silver ETFs, a recent addition, which saw folios growing 190.46% over April 2023. That is fantastic growth in 12 months, even though the base was relatively small.
• The other two categories of funds that saw good traction were equity oriented domestic index funds that showed folio growth of 111.01% between April 2023 and April 2024. In addition, FOFs investing in passive global funds also grew 101.00% yoy, while Equity oriented international ETFs also grew 34.32% 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 -19.26% while the income oriented index funds (other than TMIFs) and the Target Maturity index funds (TMIF) saw contraction of -3.09% and -1.58% respectively in April 2024 yoy.

As of April 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: APRIL 2024 OVER APRIL 2023

The table below captures the AUM of the 12 categories of passive funds with active AUM as of the close of April 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 Apr-24 (₹ Crore)	AUM Apr-23 (₹ Crore)	Growth (%)
Silver ETF	5,472.72	1,785.73	206.47%
Equity oriented Index Funds (Domestic Index Funds)	1,02,864.68	54,355.39	89.24%
Fund of funds investing overseas in Passive Funds	7,956.44	5,427.23	46.60%
Gold ETF	32,855.41	22,949.98	43.16%
Equity oriented ETFs (Domestic ETFs)	5,59,676.62	4,08,915.17	36.87%
Equity oriented ETFs (International ETFs)	10,816.03	7,975.68	35.61%
Equity oriented Index Funds (International Index Funds)	4,349.42	3,396.94	28.04%
Income/Debt Oriented ETFs	96,985.40	83,483.85	16.17%
Income/Debt Oriented Index Funds (Other than TMIF)	14,693.09	14,385.82	2.14%
Fund of funds investing overseas in Active Funds	17,018.11	17,211.62	-1.12%
Income/Debt Oriented Index Funds (TMIF)	92,907.35	95,319.83	-2.53%
Other Index Funds	3,336.62	3,635.52	-8.22%
Total of Passive Funds	9,48,931.89	7,18,842.76	32.01%

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

We have compared AUM of the 12 passive fund categories (with active folios) for April 2024 over April 2023. The share of passive funds in AUM stood at nearly 18% as of April 2024. Amidst the strong growth traction, here is what we read from the passive AUM data.

• AUM of passive funds grew 32.01% in April 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. Like in March, passive funds saw revival of interest in April too.
• Index ETF AUM has touched ₹5.60 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 leader of the pack in terms of AUM growth in April 2024 over April 2023 was led by silver ETFs, a recent addition, which saw AUMs growing by 206.47% over April 2023. The other categories of passive funds that saw good traction in the last 12 months were domestic equity index funds at 89.24%, FOFs investing in overseas passive funds at 46.60%, Gold ETFs at 43.16%, and domestic equity oriented ETFs at 36.87%.
• On the downside, miscellaneous index funds saw AUM contraction of -8.22% while Target Maturity Index Funds (TMIF) saw AUM contract by -2.53%. Out of the 12 categories of passive funds with existing folios, 9 categories of passive funds saw AUM accretion while 3 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 and April 2024 saw a reversion to passive funds.

WILL PASSIVE FUNDS SEE BETTER TRACTION IN COMING MONTHS

It is hard to say, but it is a logic progression. Passive funds may have seen tepid inflows in recent months, but March and April have seen a sharp revival in investor interest in passive funds once again as the index has scaled higher levels. In India, the share of passives is much lower than the other countries, so we may have just scratched the surface. However, one must wait for the outcome of big names in the market like Zerodha and Jio-Blackrock planning a pure passive-only approach in India. After all, why should investors really bother about looking for a needle in the haystack, when they can buy the entire haystack?