portfolio: Get active, give a ‘passive’ edge to your portfolio – Blue Barrows

Mumbai: ADAS, or Advanced Driver Assistance Systems, is the next big thing in motoring. Passive-fund NFOs appear to be doing the same job in the world of investing, promising uneventful and respectable outcomes in the auto pilot mode.

“Generating alpha for active equity fund managers is a challenge on a continuous basis. As the industry matures and attains size in the next three years, passive funds will play an important role in the investor portfolio,” said Vineet Nanda, founder, Sift Capital. “Fund houses are launching products and building a track record to capitalise when the opportunity comes in.” Hence, it isn’t a surprise that large asset managers are rushing in with new fund offers (NFOs) – in both the equity and fixed income space. In debt funds, particularly, passive schemes reduce costs and give higher returns than fixed deposits and are, therefore, attractive to subscribers seeking to lower money management costs amid increasing regulatory curbs on categories. Vineet said that large family offices, banks and HNIs invest in schemes with at least a three-year track record. By launching funds now, large fund houses are getting ready to grab a greater share of the pie in the future.

The passive space, largely on auto pilot, is seeing the fastest growth amongst all mutual fund categories. ETIG research showed that of the 230 new fund offers over the past one year, as many as 190 are from the passive space. In the past one year, data from industry body AMFI showed assets under management (AUM) of index funds touched ₹1 lakh crore in 2.8 million folios, compared with ₹28,000 crore and 1.5 million folios a year ago.


Financial planners believe passive funds make sense in categories like large caps where it is difficult to generate alpha as regulatory guidelines mandate funds to allocate at least 80% of the portfolio to the top 100 companies by market capitalisation.

“In the large cap, it is getting difficult to beat the benchmark,” said Harshvardhan Roongta, CFP, Roongta Securities. Roongta recommends index funds based on the S&P BSE Sensex and Nifty 50 Equal Weight Index over there.

, the largest fund house by assets, has launched NFOs of five passive funds, with three of them being target maturity funds and two equity passive funds that replicate the midcap and small cap indices. MF has NFOs of an auto index fund and a Nifty equal weight 50 Fund, while MF has Nifty 200 Momentum 30 ETF & Nifty 100 Low Volatility 30 ETF.

Early September, HDFC had launched Nifty 100 Quality 30 ETF, Nifty Growth Sectors 15 ETF and Nifty50 Value 20 ETF. ABBSLMF has launched a multi index fund of funds.

and Tata MF, too, have launched target maturity funds.

Financial planners point out that often NFOs are used to attract investors. With the regulator making it difficult to launch new funds in the active space as a fund house can have only one fund in a category, many fund houses are going passive. “In the passive space, a fund house can create multiple categories and offer simple index funds and smart beta products, which is not possible in active funds due to regulatory restrictions,” said Vijay Kuppa, founder, Orowealth.