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Passive investing: Will india replicate the global rise?
Published On , 23 Jun 2018 By ET Wealth
RISING POPULARITY OF PASSIVE FUNDS HAS BEEN SPECTACULAR IN THE THE LAST TWO DECADES
Over the last two decades, passive investing as a strategy has become highly popular globally. For example in the US, from managing about 5% of the total Equity assets in 1995, by 2005 passive funds were managing about 16% of the total assets which has now grown to about 35% now. By 2024, it is estimated that passive funds will manage more money than active funds. In India, currently assets managed by passive funds is just a tad over 10% of the total assets managed by Equity funds.
Some facts on passive funds
In the US, passive funds manage more than a third of the total assets managed by Equity funds
In 2005, passive funds managed about 16% of the total assets managed by all Equity funds
It is expected that by 2024, passive funds will manage more than half of total US Equity assets
In India a little over 10% of Equity assets is managed by passive funds
In India passive investing got a strong boost in August 2016 after government-run pension funds decided to start investing in stocks through index funds
REASONS FOR THE RISE THE MAIN REASONS FOR THE POPULARITY OF PASSIVE INVESTING WERE:
Investors’ disappointment with non-performing active fund managers; and The savings from lower fund management costs in passive funds add up substantial amount of money to the investor’s corpus over the long run.
In the US, there were several law suits against active fund managers for showing below-average performance over several years
In India, passive investing is just picking up. Starting in 2002, currently passive funds manage about 10% of the total assets managed by all Equity funds, aggregating about Rs 79,000 crore.
One of the reasons for the rise in assets of passive funds in India is the decision by the EPFO to invest in the Equity market through the passive investing route.
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