India Passive Funds and Their Asset Size
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
This is a brief analysis of equity passive funds in India and how they are stacked in terms of their asset size and investor interest. This is restricted to open-end funds, does not include closed-end funds.
This analysis does not include passive funds in debt and commodity category.
Passive funds include index funds as well as exchange-traded funds (ETFs).
(the blog continues below)
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Table 1: India Passive Funds and Assets Size:
(please click on the image for a better view)
Table 1 reveals:
According to data from Rupee Vest,
there are 273 equity passive funds based on 71 equity benchmark indices
from India's two leading stock exchanges, namely, National Stock
Exchange of India Ltd and BSE Ltd -- for short, NSE and BSE.
These 273 funds have assets to the tune of Rs 6.65 lakh crore as on 31Mar2024. Of these 273, 176 funds based on 19 equity benchmark indices are considered for this analysis and these 176 funds have an AUM (assets under management) of Rs 6.54 lakh crore accounting for 98.3 percent of total AUM of Rs 6.65 lakhs crore.
A total of 97 funds (based on 52 indices) are not considered for the analysis as the total assets of passive funds based on a specific benchmark index are less than Rs 1,000 crore.
For example, there are two passive funds (both ETFs) based on Nifty Midcap 100 index with a combined AUM of just Rs 896 crore -- hence, funds based on this benchmark index are ignored as they apparently have lower investor interest.
Table 2: India Passive Funds and Assets Size Benchmark Index-wise:
Table 2 reveals:
There are 176 equity passive funds based on 19 equity benchmark indices with an AUM of Rs 6.54 lakh crore as on 31Mar2024 -- of these 93 are equity ETFs and 83 are equity index funds.
The AUM of these 93 ETFs is Rs 5.58 lakh crore (accounting for 85 percent of the combined passive funds' AUM) and asset size of 83 index funds is Rs 0.95 lakh crore (nearly 15 percent).
Thirty-six passive funds based on Nifty 50 index alone have a combined AUM or Rs 3.30 lakh crore, accounting for slightly more than 50 percent of the total AUM -- showing how skewed the passive funds market is in India.
There are 21 passive funds based on S&P BSE Sensex with combined assets of Rs 1.72 lakh crore.
The domination of Nifty 50 and Sensex indices in India's passive universe is due to a big investor, EPFO or Employee Provident Fund Organisation, a Government of India body that invests in ETFs based based on four indices only, namely, Nifty 50, Sensex, Nifty CPSE Index and Bharat 22 Index.
Nifty 50 and Sensex indices account for more than three-fourths of the total assets, with a combined AUM of Rs 5.01 lakh crore.
In fact, the top indices by asset size are: Nifty 50, Sensex, Nifty CPSE, Nifty Bank and Nifty Next 50. These five indices, with a combined AUM of Rs 5.87 lakh crore, account for almost 90 percent of the total AUM of passive funds.
The top five indices have between them a total number of 93 passive funds (out of the total 176 funds from 19 indices considered for the analysis).
As can be observed from above, the passive funds market in India is highly concentrated toward only five indices -- indicating lack of depth for passive funds in India.
The remaining 14 equity benchmark indices (83 funds) with an AUM of Rs 0.67 lakh crore account for just 10 percent of the total passive assets.
Mind you, the total market capitalisation of all BSE listed companies in India was Rs 386.97 lakh crore as on 31Mar2024!
NSE Indices dominate the passive equity fund universe with a combined AUM of Rs 4.53 lakh crore, with a share of 69.3 percent. BSE follows with a combined AUM of Rs 1.91 lakh crore (29.3 percent) and foreign indices accounting for just 1.5 percent of total AUM.
There are 14 indices from NSE (NSE indices start with a prefix of Nifty), three are from BSE and the remaining two are international indices.
Table 3: India - Top 10 Equity Passive Funds by Assets Size:
Table 3 reveals:
Out of the top 10, eight are ETFs and two are index funds with a total AUM of Rs 4.64 lakh crore and Rs 0.29 lakh crore respectively.
Even among the top 10 passive funds, NSE is the top dog.
All the data are as on 31Mar2024.
Summary
The analysis is an attempt to have a big picture view of equity passive funds in India. The passive funds' universe is distorted and concentrated towards just five equity benchmark indices.
ETFs dominate the passive fund universe, due mainly to regular EPFO investments into select equity ETFs. Only five indices account for 90 percent of the total assets of passive funds.
Overall, passive fund universe is distorted and highly concentrated -- reflecting lack of depth in Indian stock market.
Indices from NSE dominate the passive fund universe with a share of almost 70 percent in AUM. Foreign indices' share is negligible in India.
The asset size of funds based on a particular benchmark index indicates the relative investor interest. You may have heard of the phrase 'wisdom of the crowds.' Simultaneously we are often cautioned about consensus views on markets.
Financial markets are both efficient and inefficient -- at certain points of time and in particular segments of the market they may be efficient. And at times, they may be inefficient in certain pockets of the market.
The author is not qualified to say anything definitive about the market efficiency. The debate about 'efficient markets' is never-ending and it is better left to the judgment of individual investors.
As has been repeated on various occasions in the author's blog posts, retail investors who are new to financial markets may show their preference toward simple equity mutual funds, like, passive funds.
As they say simplicity is the ultimate sophistication.
Active funds have repeatedly failed to beat their benchmark indices. Retail investors may be better off sticking to passive equity funds, like ETFs and index funds.
Please also check the recent blog where equity ETFs and index funds (passive funds) are compared -- check especially tables 3 and 4 in Section 4 of the blog.
For a list of passive funds to avoid, you may check a blog written a few days ago.
Please beware of the risks involved in passive funds before investing. This is not a recommendation for any
of the funds mentioned here -- they are used for illustration purposes
only. Prospective investors must consult their financial adviser before
making any investment decisions.
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References and additional data:
Dance at Le moulin de la Galette) (1876) by Pierre-Auguste Renoir
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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