3 of 3,763MF: pl fileInboxAnkur Singh 10:45 AM (9 minutes ago)to me, Anushka, MeghnaByline – Surbhi KhannaAgency – ET OnlinePublish section – MF AnalysisContent filter – strategiesKeywords: mutual funds, mutual funds news, passenger funds, equity mutual funds, index funds, ETFs, large cap funds, small cap funds, thematic funds, sectoral fundSynopsis: Mutual fund houses in 2024 have launched around 170 new funds, with a significant focus on passive schemes like index funds and ETFs. Experts suggest investors consider large-cap passive funds due to their lower expense ratios, while warning about the risks associated with sectoral and thematic funds.Why are mutual funds bullish on passive schemes? Should you follow suit? Mutual fund houses in 2024 have so far launched around 170 NFOs to round out their range of offerings. Further analysis of the data showed that of these new launches, the majority were passive funds. Around 42 index funds and 36 ETFs have been launched so far this year.
Mutual Funds Only one active fund is allowed to be launched in each category. Therefore, in order to increase the assets under management of the manager, new passive funds with different variants are launched. “It is possible to launch an NFO with some variations, many fund houses have been launching NFOs. The markets have shown resilience and hence this is always a good time to increase AUM. However, an investor needs to be careful in selecting only those NFOs which have a uniqueness and he needs them in his portfolio. Unlike direct stocks, just because they are available at Rs 10 does not mean they are cheap. Lack of track record further increases the risk of going ahead with such an NFO,” said Rajesh Minocha, Certified Financial Planner (CFP) and Founder, Financial Radiance.
Read also | Nifty hovers around 25,000: Should I start reducing allocation to ELSS mutual funds?
Tata Mutual Fund has launched a maximum of 11 passive funds in 2024 so far, followed by Motilal Oswal Mutual Fund, which launched six passive funds in the same time period. Around four fund houses launched five passive schemes each. SBI Mutual Fund, the largest fund house in terms of assets under management, launched three passive funds in the said time period.
Some passive funds that gained investor interest were Motilal Oswal Nifty India Defence Index Fund, Aditya Birla SL Nifty India Defence Index Fund and Kotak BSE PSU Index Fund, mainly due to the performance of the respective sectors.With fund houses creating so many new passive funds, should investors invest in these funds at the current time?
“Investors could opt for passive large-cap funds as most active funds in this category cannot justify their higher expense ratio. As India continues to develop and more information about stocks is readily available (like in the West), it might become difficult for active funds to generate alpha. However, in the mid-cap, small-cap, flex-cap, etc. categories, good alpha can still be generated,” Minocha advised.
He added that “we could have a good asset allocation of mutual funds with the help of personal finance professionals who do thorough research before recommending such funds.”
Around five mutual fund categories had passive fund launches of over 10%. Among these top five categories, thematic and sector funds also made their presence felt. So far in 2024, 22 thematic funds and 13 sector funds have been launched.
Read also | Parag Parikh Flexi Cap Fund increases stake in HDFC Bank, ICICI Bank and four other stocks
Four fund managers (Bandhan Mutual Fund, Motilal Oswal Mutual Fund, SBI Mutual Fund and WhiteOak Capital Mutual Fund) have launched three sector/thematic funds each. The key sectors/themes on which the funds were based were business cycle, manufacturing, healthcare, technology, consumer, innovation, special opportunities, energy opportunities and banking and financial services.
Which of these sectors or themes should investors choose? Is it the right time to invest in these funds?
“Sector funds can be extremely risky as they are concentrated in a particular sector and if it performs poorly, there is not much the fund manager can do. Redemption pressures further aggravate the situation. Thematic funds could still be good as the investment philosophy is based on investing in a particular theme, not a specific sector. The risk is also certainly very high in this category and investors should make decisions only based on their risk tolerance, objectives and time horizons. One should also avoid investing a lump sum in these funds, especially if the time horizon is only a few years,” Minocha advised.
Risk appetite, investment horizon and objective should always be considered before making an investment decision.
(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of The Economic Times.
If you have any queries regarding mutual funds, message ET Mutual Funds on Facebook or Twitter. Our panel of experts will respond to you. Share your queries on Inquiries [email protected] along with their age, risk profile and Twitter username.
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.