Motilal Oswal AMC Reveals Findings of 2nd Edition of Investor’s Survey on Passive Funds in India 2024

Survey Shows Growing Popularity of Passive Funds, Particularly Among Younger Investors

Motilal Oswal Asset Management Company (MOAMC) has unveiled the results of its 2nd Edition of the Investor’s Survey on Passive Funds in India 2024, titled The Rise of Passive Power: Transforming India's Investment Landscape. The survey highlights the increasing popularity of passive funds, especially among Millennials and Gen Z, who now account for 46-48% of passive fund investments.

As of September 2024, the combined Assets Under Management (AUM) of passive funds in India has surged to over INR 11 trillion, a 1.5x increase from the previous year, underscoring their rapid growth. The survey, which gathered insights from over 3,300 mutual fund investors, offers a comprehensive view of key trends regarding the awareness, understanding, and adoption of passive funds in India.

“We are witnessing strong growth in India’s mutual fund industry, with both active and passive strategies playing essential roles in portfolio construction,” said Prateek Agrawal, Managing Director & CEO of Motilal Oswal AMC. “While passive funds are particularly favored by younger investors for their simplicity and cost efficiency, active funds continue to hold value for those seeking deeper market insights and strategic expertise.”

Pratik Oswal, Chief of Passive Business at Motilal Oswal AMC, added, “In just one year, passive funds have grown by 1.5x, reflecting increased awareness and adoption. Index funds have gained significant traction, particularly among Millennials and Gen Z, who prefer long-term, relaxed investment styles. We anticipate continued growth, with an expected 15% increase in future allocations toward passive funds.”

Key Survey Insights:

Awareness and Understanding: A striking 98% of mutual fund investors are aware of passive funds, though 58% have only a basic understanding. Index funds are the most popular passive investment choice, with 74% of investors opting for them, including 43% exclusively investing in index funds.
Demographic Trends: Index funds are particularly popular among younger generations, with 46-48% of Gen Z and Millennials investing in them, compared to 35% of Gen X and Boomers. Younger investors also show a strong preference for sectoral indices, such as Nifty IT and Nifty Bank.
Investment Behavior: Social media and self-research are key drivers for passive fund investors, whereas active investors rely more on friends and financial advisors. Passive fund investors typically review their portfolios quarterly, with 82% planning to hold their investments for over three years.
Portfolio Allocation: 40% of passive fund investors allocate 10-30% of their portfolios to passive funds, with 80% increasing their allocation over the past year. On average, investors hold 8-9 funds, with 71% holding 1-10 passive funds.
Future Allocation: Investors are expecting a 15% increase in their passive fund allocation in the coming years.

Distributor Insights:

The survey also reveals valuable insights into the perspective of distributors. Only 38% of distributors consider themselves experts in passive funds, indicating an opportunity for growth in knowledge and expertise. While 82% of distributors favor broad Indian indices like Nifty 50 and Nifty Midcap, investors are more inclined towards sector-specific indices.

Distributors prioritize performance, tracking error, and liquidity when selecting passive funds. Additionally, 77% of distributors include factor or smart beta funds in their offerings, highlighting the growing interest in products that offer enhanced returns.

Currently, distributors allocate an average of 10% of their portfolios to passive funds, with plans to increase this allocation by 5% in the next year. Better support in identifying suitable products is seen as key to further increasing passive fund adoption.

About Motilal Oswal Asset Management Company:

Motilal Oswal Asset Management Company Ltd. (MOAMC), part of the Motilal Oswal Group, has over three decades of experience in the equity markets. Registered with SEBI as the Investment Manager for Motilal Oswal Mutual Fund, the company offers investment management and advisory services for both Indian and international investors. MOAMC provides a wide range of products, including mutual funds, AIFs, and Portfolio Management Services.