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videos | IST

Money Money Money: Investing in passive funds; experts discuss the dos and don’ts

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What is passive investing and its benefits? Also, India is now getting to see some of the strategies adopted by passive funds world over. Does it make more sense to invest through active funds? CNBC-TV18 spoke to Kalpesh Ashar, Fullcircle Financial Planners, and Anil Ghelani, DSP Mutual Fund for their views on these modes of investing

The topic in focus is passive funds. There is a huge debate out there about how you need to start looking at passive funds as a way of investing, as a way of adding some variety in your mutual fund portfolio. There are several strategies that passive funds adopt world over, and some of these have made their way into India as well.
There are smart-beta funds; there are funds, which are based on factors -factor-based investing. So, should you bother with some of these strategies at all? To demystify all of these, CNBC-TV18 spoke to Kalpesh Ashar, Fullcircle Financial Planners, and Anil Ghelani, DSP Mutual Fund.
Passive investing is all about following an index. There's no human fund manager, the fund simply mirrors an underlying index.
Ashar said about 5 to 10 years back, not many people were inclined to the passive mode of investment, but of late, people have realised it to be a low-cost and easy mode of investing. So, it has caught up in the last couple of years, but there is still a need to analyse which mode is better for a particular portfolio -- active or passive.
According to Ghelani, passive investing has taken off in quite a big way over the last three, and going ahead, passive funds will become a very important complimentary allocation in any investor's portfolio. If today one has to build a portfolio with the aim of creating long-term wealth, some co-allocation will very easily be made towards low-cost ETFs or index funds, and other allocations be made towards active funds.
So, there is no longer a debate on active or passive; it is very clearly active and passive. People will need to use passive funds as a complementary strategy rather than as a competing strategy. Also, globally in many markets, the tide has turned where net new flows is much larger in passive funds compared to active funds, especially in the US and some other developed markets, said Ghelani.
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“Personally, I feel the reversal of the tide will take some more time, but yes, definitely, even in India, we have started seeing a very healthy adoption of passive funds like both index funds and ETFs, and we have started seeing increased participation by retail and HNI investors as well, whereas, earlier, it was driven by corporates and institutional demand. Now, a large number of retail investors have also started adopting passive funds as a complementary strategy in their portfolios,” Ghelani explained.
For the full discussion on types and dos and don’ts of investing in passive funds, watch the accompanying video