Passive funds sustain growth momentum in August 2024

12 Sep 2024 , 11:45 AM

PASSIVE FLOW STORY FOR AUGUST 2024

In the last few months, passive funds are back with a bang. That is not surprising. As markets get overheated and volatile, most investors prefer the relative predictability of passive funds over active fund. After all, it is the age old wisdom espoused by Jack Bogle, “Why look for a needle in a haystack, when you just buy the haystack.” That in a nutshell has been the story of the passive fund growth in India. Today index funds and index ETFs are among the top performing funds in the equity category. When the stock markets were rallying over the past one year, high momentum stocks in defence, PSUs, autos, and oil were the low-hanging fruit. That trade has played out. Now, investors are up against much tougher choices and that is where passive funds are again starting to make a difference.

We know that passive fund saw inflows of ₹14,599 Crore in August 2024. That makes passive funds a strong category in terms of flows and also shows continuation of the interest in passive funds in recent months. Let us look at specific category-wise flows among the passives. Equity oriented domestic ETFs saw bulk of the passive net inflows at ₹8,629 Crore in August 2024. This was followed by equity oriented domestic index funds at ₹4,529 Crore. Among other key categories; silver ETFs at ₹1,664 and gold ETFs at ₹1,611 Crore; also saw robust inflows. This was on the back of rate cut hopes by the Fed, which will lower the opportunity cost of holding precious assets like gold and silver. The only category to see major outflows was the Debt oriented TMIFs, which saw outflows of ₹1,292 Crore. Out of the 13 categories; 8 categories showed positive net flows and 5 showed negative flows.

HOW INDEX FUNDS AND INDEX ETF PERFORMED IN AUGUST 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, 3-year basis, and since inception. We have considered regular plans data for the rankings. There are 369 index funds and ETFs overall in the mutual fund universe in India, with a combined AUM of ₹10,66,639 Crore. Here the Top-30 funds on 3-year returns as they are more comparable.

Passive Fund Scheme Name	1 Year (%) Returns		3-Year (%) Returns		Launch (%) Returns	AUM (₹ Crore)
CPSE ETF	84.23	53.73		17.80		43,094.93
Nippon India ETF Nifty PSU Bank BEES	41.20	42.31		6.40		2,413.00
Kotak Nifty PSU Bank ETF	41.27	42.27		5.60		1,380.07
BHARAT 22 ETF	53.25	39.42		17.80		19,905.96
Motilal Oswal Nifty Midcap 100 ETF	42.87	26.49		16.45		529.06
Nippon India ETF Nifty Midcap 150	41.22	25.81		26.21		1,689.56
ICICI Prudential Nifty Midcap 150 ETF	41.25	25.78		29.42		406.65
Aditya Birla Sun Life Nifty Midcap 150 Index Fund	40.67	24.98		28.73		272.91
Nippon India Nifty Midcap 150 Index Fund	40.25	24.84		28.60		1,574.02
Motilal Oswal Nifty Midcap 150 Index Fund	40.23	24.83		30.20		1,859.59
Motilal Oswal Nifty Smallcap 250 Index Fund	45.61	24.74		31.27		804.84
Nippon India Nifty Smallcap 250 Index Fund	45.31	24.65		38.03		1,811.59
Nippon India ETF Nifty Dividend Opportunities 50	48.45	24.58		16.76		70.44
UTI BSE Sensex Next 50 ETF	49.62	23.64		20.06		20.27
SBI BSE Sensex Next 50 ETF	49.59	23.62		19.71		19.8
Nippon India ETF Nifty Infrastructure BEES	46.15	23.46		6.90		156.79
Nippon India ETF BSE Sensex Next 50	49.30	23.33		24.19		43.69
UTI Nifty200 Momentum 30 Index Fund	55.11	22.09		28.73		7,810.49
Aditya Birla Sun Life Nifty Next 50 ETF	62.28	21.21		19.77		57.31
UTI Nifty Next 50 ETF	62.16	21.20		15.49		2,496.08
ICICI Prudential Nifty Next 50 ETF	62.17	21.19		16.65		897.26
SBI Nifty Next 50 ETF	62.14	21.15		16.26		3,077.83
Mirae Asset Nifty Next 50 ETF	62.07	21.10		22.92		268.03
Nippon India ETF Nifty Next 50 Junior BEES	62.02	21.10		20.19		5,506.57
ICICI Prudential BSE Midcap Select ETF	49.93	21.03		17.22		71.89
DSP Nifty Next 50 Index Fund	61.10	20.62		20.96		786.83
SBI Nifty Consumption ETF	44.33	20.56		23.69		16.08
Nippon India ETF Nifty India Consumption	44.22	20.55		16.73		98.76
Kotak Nifty Next 50 Index Fund	60.77	20.52		23.76		341.13
ICICI Prudential Nifty Next 50 Index Fund	61.26	20.43		14.15		6,854.21

Data Source: AMFI

The family of passive funds have a total of 369 funds across equity generic index funds, equity sectoral index funds, as well as debt index funds and ETFs. These 369 passive funds manage total AUM of ₹10,66,639 Crore as of September 09, 2024. Over a 1 year period, the average return of these 369 passive funds stands at an impressive 27.56%, despite including equity and debt index funds. If you look at 3-year returns CAGR, average returns are still impressive at 15.31%. If you look at returns since inception, then the average returns stand at an impressive 18.02% on a CAGR basis. One can argue that many of these passives are not comparable, but it is a good proxy for how a collection of passive funds across equity indices, bond indices, and thematic indices would perform as a portfolio.

HOW FUND OF FUNDS (FOF) PERFORMED IN AUGUST 2024

How has the overall universe of active and passive fund of funds (FOFs), both domestic and global, performed over 1-year, 5-years, and since inception. We have considered regular plans in this case. There are 125 fund of funds (FOFs) overall, with a combined AUM of ₹1,06,466 Crore. Here are Top-25 fund of funds (FOFs) on 3-Year CAGR returns.

Passive Fund Scheme Name	1 Year (%) Returns	3-Year (%) Returns	Launch (%) Returns	AUM (₹ Crore)
ICICI Prudential BHARAT 22 FOF	52.62	38.99	21.56	2,048.89
ICICI Prudential India Equity FOF	43.90	23.79	27.67	145.93
Nippon India Nifty Next 50 Junior BEES FOF	61.49	20.75	20.14	496.8
ICICI Prudential Thematic Advantage Fund (FOF)	36.07	19.64	15.95	1,859.21
Mirae Asset NYSE FANG+ ETF FOF	44.80	19.11	22.49	1,454.16
Kotak Multi Asset Allocator FOF – Dynamic	27.82	18.21	16.62	1,559.93
Nippon India Asset Allocator FOF	26.50	17.98	20.89	258.02
ICICI Prudential Passive Strategy Fund (FOF)	33.82	17.78	14.31	174.48
Nippon India Passive Flexicap FOF	34.43	16.73	22.56	246.72
Mirae Asset Equity Allocator FOF	33.33	16.72	26.07	863.19
ICICI Prudential Nifty 100 Low Volatility 30 ETF FOF	37.19	16.14	20.10	1,314.24
ABSL Financial Planning FOF Aggressive Plan	30.17	16.13	13.23	223.14
Quantum Equity FOF	33.95	15.79	14.62	132.44
HDFC Asset Allocator FOF	22.18	15.15	17.04	3,234.15
Franklin India Dynamic Asset Allocation FOF	19.78	15.11	14.17	1,330.20
HDFC Dynamic PE Ratio Fund of Funds	19.95	14.94	11.51	48.53
HSBC Managed Solutions India Growth Fund	28.20	14.50	14.33	44.15
Aditya Birla Sun Life Asset Allocator FOF	27.88	14.18	10.78	179.56
LIC MF Gold ETF FOF	20.12	14.01	5.46	57.73
ICICI Prudential Asset Allocator Fund (FOF)	20.52	13.66	12.40	22,700.16
Axis Gold Fund	19.34	13.65	6.03	557.35
SBI Gold Fund	19.34	13.64	5.97	2,046.02
Quantum Gold Savings Fund	19.37	13.62	11.54	120.19
HDFC Gold Fund	19.20	13.54	6.25	2,293.40
ABSL Financial Planning FOF Moderate Plan	23.99	13.52	11.09	37.04

Data Source: AMFI

The family of fund of funds (FOFs) have a total of 125 funds across equity, debt, domestic and international FOFs. These 125 passive fund of funds (FOFs) handle total AUM of ₹1,06,466 Crore as of September 09, 2024. Over a 1 year period, the average return of these 125 fund of funds (FOFs) stands at an impressive 19.2%, since this includes equity and debt index FOFs, as well as domestic and international FOFs. However, the returns are relatively lower at 8.88% on an average over 3-years and 10.55% since inception. The dispersion in longer term returns is quite large in this case.

PASSIVE FUND FOLIO GROWTH: AUGUST 2024 OVER AUGUST 2023

There have been concerns that retail has not adapted to passive funds with the same enthusiasm and gusto as they did with active funds. However, the folios growth numbers tell a more optimistic story. First we focus on the folio growth. There are 13 categories of passive funds as identified by AMFI. The category of “Other domestic ETFs” has started reporting positive folios only from this month, and hence comparisons may be odious. The table below compares the folio numbers of the remaining 12 categories of passive funds as of end August 2024 over August 2023. The table below is ranked on folio growth. It may be skewed in favour of the small base categories, but that is not a bad problem to have.

Passive Mutual Fund Schemes (Folios)	Folios Aug-24 (in Numbers)	Folios Aug-23 (in Numbers)	Growth (%)
Silver ETF	4,21,760	1,06,137	297.37%
Other Index Funds	81,954	37,865	116.44%
Equity oriented Index Funds (Domestic Index Funds)	98,35,757	46,80,464	110.14%
Equity oriented ETFs (International ETFs)	5,71,529	3,26,589	75.00%
Fund of funds investing overseas in Passive Funds	6,84,269	5,18,052	32.09%
Equity oriented ETFs (Domestic ETFs)	1,28,88,815	1,00,01,312	28.87%
Gold ETF	56,60,198	47,95,268	18.04%
Income/Debt Oriented ETFs	22,42,680	19,00,377	18.01%
Equity oriented Index Funds (International Index Funds)	2,58,966	2,37,111	9.22%
Income/Debt Oriented Index Funds (TMIF)	1,51,819	1,42,049	6.88%
Income/Debt Oriented Index Funds (Other than TMIF)	14,699	15,634	-5.98%
Fund of funds investing overseas in Active Funds	7,22,471	8,64,731	-16.45%
Other Domestic ETFs	1,47,744	0.00	N.A.
Total of Passive Funds	3,36,82,661	2,36,25,589	42.57%

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

The above table compares the folios at the end of August 2024 with the folios at the end of August 2023 (12-month yoy growth). Here are the inferences.

• Passive fund folios yoy growth in August 2024 stood at 42.57%; as compared to 38.86% in July 2024, 34.24% in June 2024, and 32.40% in May 2024. That is a lot of investor intensity in last 12 months, if you go purely by folio numbers. The total folios of passive funds stand at 336.83 Lakh folios as of end August 2024; compared to 81 Lakh folios in July 2024, 305.01 Lakh folios in June 2024, and 296.43 Lakh folios in May 2024. The yoy growth is steadily higher, and it is a signal that passive retail spread is getting built.
• Which is the specific category of passive fund that led the growth. The leader was silver ETFs, a recent addition, which saw folios growing 297.4% over August 2023. That is fantastic growth in 12 months, despite a relatively small base.
• The other 3 categories of funds that saw good traction were other index funds at 116.44%, equity oriented domestic index funds with folio growth of 110.14%, and equity oriented international ETFs at 75%.
• Which were the laggards in this folio growth list? Once again, the FOFs investing in overseas active funds continued to see a sharp fall in folios by -16.45% while the income oriented index funds (other than TMIFs) saw contraction of -5.98% in August 2024.

As of August 2024, out of the 13 categories of passive funds with active folios, 11 categories saw accretion in folios over August 2023; with 2 of them more than doubling folios in the last one year, and 8 of these passive categories growing folios in double digits.

PASSIVE FUNDS AUM: AUGUST 2024 OVER AUGUST 2023

The table below captures the assets under management (AUM) of the 13 categories of passive funds with active AUM as of the close of August 2024. Unlike folios, AUM is a mix of fresh flows and market cap accretion. It measures heft, beyond just retail intensity.

Passive Mutual Fund Schemes	AUM Aug-24 (₹ Crore)	AUM Aug-23 (₹ Crore)	Growth (%)
Silver ETF	9,641.38	2,202.46	337.76%
Equity oriented Index Funds (Domestic Index Funds)	1,45,843.92	65,120.13	123.96%
Gold ETF	37,390.03	24,318.09	53.75%
Equity oriented ETFs (Domestic ETFs)	6,69,473.02	4,46,407.43	49.97%
Equity oriented Index Funds (International Index Funds)	5,123.25	3,800.29	34.81%
Equity oriented ETFs (International ETFs)	12,021.88	9,157.40	31.28%
Fund of funds investing overseas in Passive Funds	8,226.53	6,316.70	30.23%
Income/Debt Oriented ETFs	1,03,031.24	88,656.92	16.21%
Other Index Funds	3,565.20	3,377.21	5.57%
Income/Debt Oriented Index Funds (Other than TMIF)	14,780.00	14,365.31	2.89%
Income/Debt Oriented Index Funds (TMIF)	94,461.73	94,086.69	0.40%
Fund of funds investing overseas in Active Funds	17,159.46	17,231.94	-0.42%
Other Domestic ETFs	177.70	0.00	N.A.
Total of Passive Funds	11,20,895.34	7,75,040.57	44.62%

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

We have compared AUM of the 13 passive fund categories (with active folios) for August 2024 over August 2023. The share of passive funds in AUM had fallen below 17% in May 2024, but had then bounced back to 17.14% in June 2024. However, the share again fell to 16.86% in July 2024; and has fallen further to 16.80% in August 2024.

• AUM of passive funds grew 44.62% in August 2024; compared to 40.19% in July 2024, 37.84% in June 2024, and 32.86% in May 2024 on a yoy basis. Much of the accretion in the AUM has obviously come from Nifty and Sensex touching all-time highs, and so the AUM growth has been more pronounced in the equity oriented passive categories. However, the tapering bond yield helped passive debt index funds also to gain AUM.
• Index ETF AUM of domestic ETFs touched ₹6.70 Trillion and it has emerged as the single largest contributor to the overall mutual fund AUM. In fact, the equity index ETF AUM is also the largest class of fund in India in terms of AUM across all MF categories.
• The leader of the pack in terms of AUM growth in August 2024 over August 2023 was led by silver ETFs, a recent addition, which saw AUMs growing by 337.76% yoy. The other categories of passive funds that saw good traction in the last 12 months were domestic equity index funds at 123.96%, Gold ETFs at 53.75%, equity oriented domestic ETFs at 49.97%, and Equity oriented International Index Funds at 34.81%.
• On the downside, fund of funds (FOFs) investing in overseas active funds saw marginal contraction in AUM of -0.42 while all the other categories of passive funds saw accretion in AUM for August 2024. Out of the 13 categories of passive funds, 12 categories of passive funds saw AUM accretion. Eight of these passive funds grew in double digits, while two of these eight more than doubled AUM on a yoy basis.

The growth in passive AUM has come on the back of index accretion, but also at a time when the market volatility and uncertainty levels have been high. Indications are getting stronger that passive is back with a bang!