Navi Mutual Fund (MF), among the latest entrants in the Rs 35-trillion industry, is looking to make a mark in the passive investment space, which is gaining traction in the country. The Flipkart co-founder Sachin Bansal-led fund house filed seven offer documents with the market regulator Securities and Exchange Board of India (Sebi) on a single day this week.
Some of the schemes Navi MF plans to launch are Navi NASDAQ 100 Fund of Fund, Navi Nifty Commodities Index Fund, Navi Nifty 100 ESG Index Fund. It will also launch Navi Total US Stock Market Fund of Fund, which will allow investors to invest in Vanguard Total Stock Market Index Fund ETF (VTI). The fund will invest in units of (VTI), show the offer document. Vanguard is among the world’s largest asset managers and a pioneer in the passive investing space.
“The focus will largely remain on launching passive funds as they are easy to understand and cost effective. In the next few days, we are planning to file a few more funds with the regulator and will launch them as and when we start getting clearance from Sebi,” said a company official.
Earlier in August, the fund house had filed offer documents for Nifty Next 50 Index Fund, Nifty Midcap 150 Index Fund and Nifty Smallcap 250 Index Fund. Passive funds aim to mimic the performance of a particular market index. While active mutual funds have a professional investment team who try to outperform the index benchmark and other funds.
Passive funds tend to be more tax-efficient and have a lower expense ratio compared to active funds. In July, the fund house had launched Navi Nifty 50 Index Fund with an expense ratio of 0.06 per cent lowest in the index schemes category.
In the last few years, the demand of passive funds has increased as performance of equity funds faltered. The trend is largely seen in the large-cap category where top returns are generated by the passive funds.
The data from Value Research shows that out of top ten best performers in the last one year, seven schemes are passive in nature. On an average large-cap funds have given returns of 51.79 per cent in the last one year.
Schemes having index funds, exchange traded funds (ETFs) and fund of funds investing overseas have seen huge rise in their assets. The data from Association of Mutual Funds in India (Amfi) shows that such schemes had net assets under management (AUM) of Rs 1.65 trillion as on March 2020 which increased to Rs 3.21 trillion in March 2021.
As on July end such schemes had a net AUM of Rs 3.77 trillion. Market participants say that several of the first-time investors start their investment journey through passive products and demand is likely to continue going forward.