The Rise of Passive Funds
The Indian Mutual Fund Industry has grown manifold in the last few years. The total assets managed by the industry has more than doubled in the last 5 years to reach ₹37 trillion as of September-2021. In the last 10 years, the assets under management have increased almost six times. Relative to Banks’ the assets managed by Mutual Funds have risen to more than 20% of Bank Deposits and 40% of Bank Fixed Deposits. The point is that the Mutual Industry has grown rapidly in the last few years and has become reasonably large relative to the Banks.
Historically, the mutual fund industry has been dominated by actively managed funds. These funds are designed to generate ‘alpha’ and in return, the Asset Management Company charges an extra fee. While even today the actively managed funds dominate the total assets of the industry, at the margin, things are changing. Passively managed funds are growing faster than actively managed funds and the composition of funds is changing, especially in incremental terms.
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