Retail Investors Prefer Index Funds, Folios Up 12 Times in 4 Years

 Mumbai: There has been a remarkable surge in the adoption of Index Funds among retail investors over the past few years. The total retail folios in index funds increased by close to 12 times from 4.95 lakhs in March 2020 to 59.37 lakhs in Dec 2023.

Folios are unique identification number assigned by an asset management company (AMC) when one invests in a mutual fund.

"The proliferation of index funds corroborates with a substantial rise in the total assets under management (AUM) of these funds, inclusive of both equity and debt categories. The AUM of index funds has recorded an increase of 25 times from about Rs 8,000 crore in March 2020 to about Rs 2,13,500 crore as of March 2024, said a study.by Zerodha AMC.

To cater to the growing appetite and confidence of investors in index funds, many mutual fund houses have launched equity and debt index funds in the last 4 years. The total number of index funds has increased from 44 in March 2021 to 207 in March 2024, accounting for an absolute growth of 370 per cent. As of 31st March 2024, there are 120 and 87 equity and debt index funds respectively.

"The comprehensive breakdown of assets under management across various broad-based Nifty indices further illustrates investor preferences. The dominance of the Nifty 50 index, comprising 70.7 per cent of total AUM at Rs 52,000 crore, reflects a clear preference for large-cap stocks. Meanwhile, the Nifty Next 50, with 14.6 per cent of total AUM at Rs 10,000 crore, and smaller allocations to mid and small-cap

stocks, suggest a balanced approach to risk and return among investors," the study said.

The index funds category assets were at a record high of Rs 2.43 lakh crore as of June 2024, and has seen a surge of nearly 900 per cent in assets in the past three years. Across all the other mutual fund categories, Index Funds witnessed the highest AUM growth (in %) over the past 3 years.

"The increasing contribution of folios in the MF industry is incrementally being contributed by index funds. Nearly 11 per cent of new folios last financial year came from index funds. It is only the beginning of a growing trend . Retail investors increasingly prefer to have simple & transparent exposures with passive products like index funds in their portfolios and this trend is heartening to see,” said Vishal Jain, CEO, Zerodha Fund House.