What is passive mutual fund, it gives 35% return in one year!

New Delhi. Many investors who invest in the stock market and mutual funds may not know about passive mutual funds. That too when this fund has given a return of around 35% in the last one year. In the last one year, the performance of passive funds has attracted many investors to these funds. Passive funds recorded an average return of around 35 per cent in FY24 and this is why assets under management of Exchange Traded Funds (ETFs) have grown to Rs 6.95 lakh crore from Rs 5.07 lakh crore in the past one year. .

Most of the investments in passive mutual funds are coming from small cities and towns (Tier 2) and there has been the largest increase in investors. Basically, passive funds track a benchmark index and try to mimic its performance. Passively managed funds include passive index funds, funds of funds that invest in exchange traded funds (ETFs). These funds follow a benchmark and aim to provide returns commensurate with the benchmark.

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How does a passive mutual fund work?
Passive mutual funds include Nifty 50 index, Nifty Midcap 150 ETF etc. Given their simplicity, passive funds are better entry points for young people who prefer to go with the flow of the market rather than make active choices. It also provides exposure to larger markets. It selects all 50 nifty stocks or any one of 50 with profit. It offers the best of both stocks.

The approach of the fund house also changed.
Given the growing popularity of passive funds, mutual fund houses have now started looking at the Nifty 50 index from a different perspective to give better returns to investors. Nippon India Nifty 50 Value 20 Index Fund is a perfect example of this. The fund is designed to reflect the behavior and performance of a diversified portfolio of value companies that are part of the Nifty 50 index. It includes the 20 most liquid valued blue chip companies listed on the NSE. By selecting the top 20 stocks of the index, the fund has returned 34.26%. During this period, the Nifty 50 index has returned only 26.27%. The beauty of this index is that it selects stocks from the Nifty 50 universe, that too with specific characteristics.

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Investors get a double benefit.
According to Sanjay Patel of Shri Hari Financial Services, ‘Passive investing gives an investor the opportunity to earn double the returns. Firstly, it selects the right stocks based on certain factors and secondly, it keeps them in the form of an index fund. Investing in this type of smart beta index is becoming quite popular, as investors are getting the benefit of lower costs and lower risk.

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