Passive funds on the rise: Index funds' net assets jump nearly 3 times in 2022

Index funds emerged as the preferred investment options for investors in 2022 amid the ongoing uncertainty in the domestic equity market due to the geopolitical crisis between Russia and Ukraine, rising interest rates and sustained selling by foreign institutional investors.

Data from the Association of Mutual Funds in India (Amfi) showed that net assets under management (AUM) of index funds increased by 2.84 times, or nearly 184 per cent, to Rs 1.29 lakh crore on December 31, 2022, from Rs 45,429 crore a year ago. Index funds are passive mutual funds that mimic popular market indices.

On the other hand, the net AUM of gold exchange-traded funds (ETF) also jumped by 16.57 per cent to Rs 21,455 crore in the past 12 months. Net AUM of other ETFs also rose by 29.47 per cent to Rs 4.97 lakh crore in 2022.  

Overall, the net AUM of the mutual fund industry stood at Rs 39.89 lakh crore on December 31, 2022, against Rs 37.73 lakh crore on December 31 last year, registering an increase of 5.72 per cent on a YoY basis. The average asset under management of the industry grew by 7.49 per cent to Rs 40.76 lakh crore during the same period.

Meanwhile, SIP inflows came at Rs 13,573 crore in December 2022, an all-time high at the gross level. This was also the third month in a row beyond Rs 13,000 crore and the 16th month above the 10,000 crore mark in terms of monthly SIPs. Cumulative SIP inflows for the calendar year 2022 stood at a record Rs 1,49,437 crore, up 31 per cent from 2021, translating to a monthly average of Rs 12,453 crore.

Sriram BKR, Senior Investment Strategist, Geojit Financial Services said, “It is impressive to see steady SIP inflows and it shows that investors are increasingly becoming aware of the benefits SIP can bring to their investments over time, especially when markets are volatile.”

Going forward, the market watcher believes that challenges would be on, above-average redemptions induced either by profit booking or heightened volatility and cancellation of SIPs.

“Market falls or fluctuations for months in a row can be perplexing at times, but what we have seen in equities is that it rewards those with discipline and patience handsomely in the long term. Investors should continue their SIPs through the market volatility in order to reap the fullest gains of this whole systematic approach of investing in equities,” Sriram BKR said.

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