Last Updated on November 4, 2021 at 7:42 am
In this article, let us determine what percentage of mutual fund AUM is in passive funds (index funds and ETFs). We shall consider four dates to consider the AUM growth.
1: Sep 2021 (latest at the time of writing); 2: March 2020, when the mark fell due to the pandemic/lockdown. 3: Jan 2018 – Before the market imbalance, visibility started to get bigger and bigger until the March 2020 crash. That is, Sensex and Nifty moved upon the strength of their top few stocks while the remaining cap segments kept moving down. See: Return difference of Nifty 50 vs Nifty 50 Equal-weight index at an all-time high! And Market crash destroys the two-year imbalance among Index stocks. 4: Sep 2016 – five years ago.
We shall compare the AUM of all active equity funds (excluding hybrid funds) with the AUM of all index funds and the AUM of all index ETFs.
| Month | AUM Active | AUM Index | AUM ETF |
| Sep-21 | 1280708 | 26086 | 267018 |
| Mar-20 | 582784 | 8088 | 108047 |
| Jan-18 | 600537 | 3135 | 57049 |
| Sep-16 | 371835 | 1898 | 17630 |
Next, we consider the fractional AUM.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
| Month | Index AUM/ Active AUM | ETF AUM/Active AUM | Passive AUM/Active AUM |
| Sep-21 | 2.04% | 21% | 23% |
| Mar-20 | 1.39% | 19% | 20% |
| Jan-18 | 0.52% | 9% | 10% |
| Sep-16 | 0.51% | 5% | 5% |
Currently, the total index AUM is about 2% of the total active AUM. Until Jan 2018, when there was no visible evidence of index fund outperformance, the index AUM was only about 0.5% of active AUM.
It is only after investors saw the “star ratings” of active funds (esp. large cap funds) fall and those of Nifty, Nifty Next 50, and Sensex funds rise did they increase “exposure” to index funds.
Retail investor participation in ETFs has increased and is much higher than the corresponding increase in index funds. The lockdown and increase in stock investing/trading have played a role. However, the increase in ETF AUM is not entirely because of retail participation. EPF inflows have had a big role to play since Aug 2015. Today, SBI-ETF Nifty 50 accounts for 45% of the total ETF AUM, and SBI-ETF Sensex accounts for 22%.
The remaining AUM is about 8-9% of the total active AUM but may have contributions from other institutions, plus some portion of this AUM may also stem from retail investors trading. This AUM increase explains why AMCs are keen to launch and advertise new ETFs (“low-cost mutual fund”).
While a jump from 0.5% to 2% in the index fund space nearly four years or so is significant, the inflow may not be as enthusiastic in future. At the time of writing, there are no 5-star rated passive funds at Value Research, unlike the situation a year ago. There are only three 4-star rated Sensex funds.
Mutual funds investors follow the (recent) past performance with a small lag. The plethora of passive NFOs flooding the market is unlikely to meet with a positive response immediately.
Let us try to appreciate the increase in index fund inflow with a crude estimate. First, we sum the NAV of all active funds as of March 2020 and Sep 2021 and find the percentage change = 114%. Next, we find the percentage change in AUM in this window = 120%. So increase in inflow = 120% – 114% = 6%. approximately.
In the case of index funds, the increase in inflow is a whopping 103%. Of course, on an absolute basis, this is small, but the increase in the popularity of index funds (relative to Mar 2020) is clear.
Between Jan 2018 and March 2020, the inflow into active funds is 23%, while the inflow into passive funds is an impressive 174%. This is a period when the fraction index fund AUM/ Active fund AUM increased by 2.66 times. Between Sep 2016 and Jan 2018, the inflow of active funds and index funds was comparable – 33% and 34%, respectively. We have not included ETFs in this comparison since the data is skewed by EPF AUM.
In summary, the index fund AUM is a mere 2% of the active fund AUM at the time of writing. The ETF slice is higher but dominated by EPF inflows. While the recent growth in index fund AUM has been impressive, it has been based on recent past performance, similar to how any fund becomes popular. See, for example, the AUM of Parag Parikh Flexi Cap Fund grew by 147% in 2020!
We believe that this growth in index fund AUM (excluding EPF contribution) may not sustain. Most MF investors suffer from shiny object syndrome and are likely to increase exposure to their active funds once they seem to outperform.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)