NEW DELHI: The $ 442 billion asset management industry in India has finally taken into account the passive investment juggernaut.
After decades of slow growth, the number of accounts invested in index tracking or funds traded more than doubled to 5.6 million in April.
Passive products now contributed almost a quarter of equity assets under management versus about 16% two years ago, data from mutual fund associations in India showed.
Which is comparable to more than 50% in the US.
The foundation for booms is laid out by a series of regulatory changes that prevent managers active funds from the league gaming table.
What was supercharged was a Covid-19 pandemic, as elsewhere, triggered a surge in retail investment that was seen millions of new youth traders piled up to Indian equity through an online application.
Their interest now shed to ETF, creating a gap for the manager of the upcoming asset to become India Vanguard itself.
Zerodha Broking Ltd, operators such as overhambers who become the largest brokers in India, are awaiting regulatory approval for asset management companies that will only focus on passive investments.
The aim is to “offer a simple product to understand for the first investor,” said Nithin Kamath, Chief Executive Officer in Zerodha.
“Like how Vanguard’s pension funds in the US make it simpler to invest.” Malvern, Vanguard based Pennsylvania is famous for its passive index tracking funds pioneered by the founder of John Bogle.
There are no plans to enter the Indian market today, said a spokesman.
Passive focus with domestic players embedded well, India has historically become a difficult market for managers of large global assets, and some of them have come out of the local industry after extinguishing losses.
Like Fidelity International and Goldman Sachs Group Inc.
Has sold Indian units from their fund management business in the last decade.
“In India, while people have launched passive investment products, the focus is not passive because most of the income is produced from active funds,” Kamath said.
“We feel there is an opportunity for the only passive asset management company in this country.” Angel Broking Ltd., which also runs a low-cost stock trading platform, also plans to find an asset management business by floating funds that focus on technology-based passive investment products.
The candidates hope to quickly accumulate the scale on the ETF market in the same way as low service and often free – along with accessible online platforms – help them improve the Indian stock industry.
As elsewhere in the world, one of the main drivers of passive funds is a cost.
The cost for index funds in India is usually around 0.1-0.2%, while for actively managed funds that can measure 1-1.5% of assets.
20-years waiting “This is a very pleasant time, something I have been waiting for almost 20 years,” said Vishal Jain, Head of ETFs in Nippon Life India Asset Management Ltd., which is the head of the main investment in India’s first passive investment fund again In 2001.
In March 2020, he had 1 million clients invested in ETFs.
Now 2.3 million.
“What has taken 19 years between 2001 and 2020, we did only in the past year.” The rapid development in ETF investment is also due to regulatory reform.
In 2017, the Securities Agency and the Indian Exchange acted to prevent money managers from loading large funds with middle or small closes in an effort to produce a better return than their benchmarks.
The following year, the authority mandates the performance that will be disclosed towards the appropriate benchmark refund index, as opposed to the price index that does not include dividends.
Together, this reform makes the low performance of active funds suddenly much more visible by ordinary investors.
Index S & P BSE 100, a measuring of the Indian company, beat 100% of large equity mutual funds managed actively in the second half of 2020, according to data from the S & P Dow Jones index.
“Now it reaches a critical point,” Anish Teli said, managing partners at QED Capital Advisors LLP in Mumbai, an investment company that serves high-class individuals who offer active and passive options.
“Regulator steps are a catalyst in bringing the advantages of passive investment more clearly.”