Over 200 Funds are now passively tracking the Nifty Index

Index Funds and Index ETFs represent the passive category of investment avenues in India. As we shall see later, this is the segment that has been rapidly growing in the Indian context. Today, hybrids and passive funds contribute to about 30% of the total AUM of the mutual fund segment in India. A large part of the passive growth has been contributed by the exchanged traded funds (ETFs), which are listed on the stock exchange and can be traded through your regular trading account and held in the demat account. The NSE has just listed its 200ths passive ETF tracking the NSE Nifty indices. That is a huge passive palate available.

According to a recent press release by the NSE, the total number of passive funds (ETFs and Index Funds) tracking Nifty Indices in India have crossed 200. This is not just the Nifty 50, but all the Nifty thematic, capitalization and sectoral indices combined. Out of the 201 passive funds tracking the NSE Nifty indices, there are a total of 110 ETFs and 91 index funds. The difference between an index and index ETF is that an ETF is a closed ended fund which is listed on a stock exchange. The index fund is also benchmarked to an index but it is a regular mutual fund with purchase and sale available on a daily basis at NAV linked prices.

Out of the nearly 40 asset management companies in India, a total of 24 AMCs have issued such index ETFs / index funds, which his nearly 60% of the total Mutual Fund AMCs available in India. India tracking 72 unique Nifty Indices. Out of these 201 passive funds stated above, 166 are equity based passive funds while the balance are debt based passive funds. If you look at purely the Nifty indices linked funds, they account for 76% of the total number of equity and debt passive funds and 73% of the total share of AUM of equity and debt passive funds. The other funds are linked to the Sensex or to other indices like Crisil Bond indices.

As active fund managers increasingly struggle to beat the performance of the index, the passive index funds and index ETFs have taken off in a big way in India. For instance, in the last five years, the AUM (assets under management) of the passive funds segment has grown at a CAGR of 55%. As of the end of October 2022, the total AUM of passive assets stood at Rs. 6.15 trillion, of which Rs. 4.56 trillion were in equities, Rs. 1.38 trillion were in debt and the balance Rs. 0.21 trillion in other commodity ETFs and FOFs. You can understand the scale of growth from the fact that the total AUM of passives was just Rs. 0.68 trillion as of the end of October 2017. In short, passive assets have grown 9-fold in India in last 5 years.

Out of the total passive AUM of Rs. 6.15 trillion, nearly Rs. 4.35 trillion is tracking Nifty indices. Out of the Nifty indices tracking index funds and index ETFs, 55.2% track the Nifty-50 while the Nifty Bank Index (Bank Nifty) accounts for 6.3% of the index AUM. The balance 38.5% is split among all the other NSE indices. On the bond indices, it is the Nifty Bharat Bond indices used by the PSUs that has been the most popular accounting for over 11% of the debt passive AUM. The moral of the story is that the trend towards passive investing is catching on and the NSE Nifty indices appear to be at the forefront of this shifting trend in AUMs.

Speaking about the merits of passive funds and index ETFs, the legendary Jack Bogle of Vanguard funds best summed it up, “Why look for a needle in a haystack, when you can buy the entire haystack”. But the biggest tribute to the vision and courage of Bogle came from no less a person than Warren Buffett himself. In his 2016 letter shareholders, Buffett specifically lauded the efforts of Bogle for saving billions of dollars in costs to retail mutual fund investors and in the process directly translating that into unit holder wealth. That explains why the Indian audiences are gravitating towards these indexed products.