{"id":548,"date":"2019-06-28T12:04:40","date_gmt":"2019-06-28T12:04:40","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=548"},"modified":"2019-06-28T12:33:21","modified_gmt":"2019-06-28T12:33:21","slug":"why-are-fund-houses-introducing-passively-managed-funds-now","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/06\/28\/why-are-fund-houses-introducing-passively-managed-funds-now\/","title":{"rendered":"Why Are Fund Houses Introducing Passively Managed Funds Now"},"content":{"rendered":"\n

An increasing number of mutual fund houses are seeking SEBI\u2019s nod for their passively managed NFOs. Smaller provident funds have been keen to invest in equity through passively managed funds, on the lines of EPFO, and mutual fund<\/a> houses are making this an excuse to push more passively managed offerings now. <\/p>\n\n\n\n

But there\u2019re more reasons to come\nup with passively managed or index funds at this juncture. <\/p>\n\n\n\n

The underperformance of actively managed funds is haunting almost all fund houses. As the market breadth has been weak, their funds have underperformed Nifty and Sensex. According to Business Standard, 62% of actively managed equity funds<\/a> have underperformed their respective benchmarks in FY 2018-19. <\/p>\n\n\n\n

You would be surprised to know\nthat over 700 companies listed on BSE have a market capitalisation of less than\nRs 1,000 crore. <\/p>\n\n\n\n

Approximately 100 companies out\nof BSE 500 companies hovered at their 52-week low in June. <\/p>\n\n\n\n

Market cap of \u201cB\u201d group companies\nis near their 5-year low. <\/p>\n\n\n\n

But leading indices such as BSE\nSensex and CNX Nifty have managed to touch their all-time high recently. <\/p>\n\n\n\n

This disconnect within the market\nhas affected fund manager\u2019s confidence negatively. <\/p>\n\n\n\n

Are index funds the way forward?<\/strong><\/p>\n\n\n\n

Index funds are popular in\ndeveloped countries like the U.S. It is noteworthy that the U.S. is a saturated\neconomy, where the active-fund managers find it difficult to generate alpha\nover the benchmark. However, India is still a growing economy, which continues\nto offer lot of opportunities to active-fund managers. <\/p>\n\n\n\n

Notably, the size of the mutual\nfund industry in the U.S. is about 80% of its GDP, while the Indian mutual fund\nindustry is just about 12% of the GDP. So, there is a long way to go before we\nget to a level where the active fund management becomes completely ineffective\nand redundant.<\/p>\n\n\n\n

Developing countries like India\nare unlikely to run out of alpha-opportunities any time soon. Simply going by\nthe dominant share of the unorganised sector in the Indian industry, there will\nbe enough alpha-opportunities when these businesses join the mainstream. That\nsaid, the recent failure of actively managed funds to outperform broader\nindices is bound to haunt the industry for some more time.<\/p>\n\n\n\n

Here\u2019s why actively managed funds should form the core of your portfolio in 2019 and beyond<\/strong><\/p>\n\n\n\n