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Simplicity of index funds draws investors, folios double to 19 lakh in a year: Report

Simplicity of index funds draws investors, folios double to 19 lakh in a year: Report

Simplicity of index funds draws investors, folios double to 19 lakh in a year: Report
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By CNBCTV18.com Dec 29, 2021 6:25:05 PM IST (Published)

Simply put, index funds -- like those tied to the Nifty 50 or Nifty Next 50 -- are passive funds that do not require fund managers and also cost less than active funds. The AUM of these funds grew from Rs 15K crore to Rs 40K crore over the last year.

With a number of mutual fund investors showing keen interest in index funds, assets under management (AUM) of these funds grew from Rs 15,000 crore to Rs 40,000 crore over the last year, an Economic Times report said.

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The simplicity of index funds has lured investors, increasing the folios in the category from 8.1 lakh to 19.1 lakh in a year, the report said quoting data from the Association of Mutual Funds in India (AMFI).
Index funds are passive mutual funds that invest in the index. As they mimic popular market indices, index funds do not require fund managers to build a portfolio by selecting industries and stocks. The index fund simply invests in all the stocks that constitute the index.
Three factors drove investor interest in these funds, experts told The Economic Times. There is no fund manager bias in these funds, investors get access to broader markets and it also saves cost.
The simplicity of an index fund makes it easier for new investors to understand the fund as compared to an active fund, which requires detailed understanding of strategy, positioning, fund management experience, The Economic Times quoted Vijay Kuppa, founder of Orowealth, as saying.
"Investors are getting conscious of costs and there is increasing awareness," he said, recommending funds that track the Nifty 50 and Nifty Next 50.
The price of the index funds is only a fraction of active funds. While the cost of a Nifty 50 index fund is 6-20 basis points, the price of an actively managed fund is 75-125 basis points in a direct plan. This difference can result in significant saving for those who invest for the long term.
While distributors hesitate to sell index funds for fear of losing their fees, financial planners have been recommending index funds in the last couple of years, especially in the large-cap space. Meanwhile, a number of fintech platforms that offer only direct plans are selling index funds aggressively.
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