AUM of passive investment products will grow 8 times by 2025 to Rs 25 lakh crore: Report

The assets under management (AUM) of passive investment products will grow eight times by 2025 to Rs 25 lakh crore from the current level of Rs 3 lakh crore, a report by low-cost investment platform Finity said on Thursday.

It further estimated that passive assets will grow to constitute 37 per cent of the overall assets in the mutual fund industry by 2025, from 10 per cent as of March 2021.

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Currently, the 45-player mutual fund industry manages assets to the tune of over Rs 36 lakh crore.

The report noted that passive investments have emerged as one of the promising avenues to grow investors' money.

Passive investing is broadly a buy-and-hold investment strategy where the investor invests in a basket of securities as defined by a set methodology based on an underlying index.

A passive investing strategy does not require an investor to buy and sell actively. There are two main vehicles for passive investing -- index funds and exchange-traded funds (ETFs).

Finity's 'GoPassive - Passive Investing Report 2021' noted that in the last five years, the Indian passive market has taken off, with assets growing more than 1,200 per cent in absolute terms.

From March 2016, passive assets under management have grown from Rs 22,409 crore to Rs 3,10,330 crore in March 2021, at a CAGR of 69 per cent.

Moreover, passive assets have almost doubled in the last 12 months.

According to the report, three factors that are contributing to the rising interest in passive investing are -- underperformance of active funds, especially in the large cap category; lower costs; and regulatory and government policies that encourage investment in passive investing products.

The passive investing market has seen several innovative products launched in the last couple of years with around 160 passive schemes being offered currently.

"Passive investing is emerging as an important part of investor portfolios. With the entry of Fintech companies in the asset management industry, the number of passive funds that are being launched every month is at an all-time high which has resulted into healthy competition and innovation in products," said Abhilash Joseph, Business Head of Finity.

"We expect that the total AUM in passive assets will more than double over the next two years," he added.

As of March 2021, AUM of passive investments as a percentage of overall asset base of mutual fund industry in India was at 10 per cent, compared to 2 per cent at the end of March 2016. This represents a five times growth in five years.

"Passive funds space is set to grow bigger with growth of mutual fund industry and piggy backing on India as faster growing economies," the report mentioned. PTI