With weak inflows into actively-managed equity schemes, mutual fund houses are now looking at offering low-cost products like index funds and quant funds to boost their assets. As per market participants, this trend will pick up in the coming months through launch of passive funds in various forms ? be it as index funds, exchange traded funds (ETF) or even quant funds.
Earlier, fund houses were wary of launching index funds and were not keen on pushing the product since the management fees were lower. Selling index funds over active funds also meant effective cannibalisation of its own products. Index funds, as opposed to actively managed equity funds, don’t require the services of a fund manager and just has to mimic the index ? investing stocks in the same proportion. But now, with no equity inflows coming into active funds, fund houses are leaving no stone unturned to garner money.
On Thursday, Taurus Mutual Fund launched Taurus Nifty Index Fund. Waqar Naqvi, CEO of Taurus MF, says, ?The main reason to start the fund is to grow our products and this is the first index fund which we are launching. In the current scenario, when the fund industry is struggling to garner money, product like index fund with low cost will prove beneficial.? Expense ratios of equity diversified funds are in the range of 2-2.5% per annum as opposed to 0.5-1.5% for index funds. From August 1, 2009, Sebi had banned entry loads for mutual funds which led to lesser sales for the industry.
The total asset of index funds today is very small at Rs 1,700 crore, which is less than 1% of the overall equity assets under management. As per sources, IDBI MF recently collected over Rs 200 crore from its NFO. Krishnamurthy Vijayan, MD & CEO of IDBI MF, says, ?Index fund (Nifty) get diversification of all the best 50 stocks in the market as well as ownership at a lower cost than that of equity diversified funds. He adds that the risk is also lower in the index fund as there is no fund manager risk.