Index funds see 85% AUM growth in one year: Are they a good bang for your buck? Index funds see 85% AUM growth in one year: Are they a good bang for your buck?

Index funds see 85% AUM growth in one year: Are they a good bang for your buck?

Index funds have lately emerged as the fastest-growing category in Systematic Investment Plan (SIP) Assets Under Management (AUM). A recent study by Zerodha Fund House reveals that index funds achieved nearly 85% growth in AUM over the past year, with live SIP accounts increasing by around 80%.

Index Fund Corner

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Scheme Name 1-Year Return Invest Now Fund Category Expense Ratio
Axis Nifty 50 Index Fund +32.80% Invest Now Equity: Large Cap 0.12%
Axis Nifty 100 Index Fund +38.59% Invest Now Equity: Large Cap 0.21%
Axis Nifty Next 50 Index Fund +71.83% Invest Now Equity: Large Cap 0.25%
Axis Nifty 500 Index Fund Invest Now Equity: Flexi Cap 0.10%
Axis Nifty Midcap 50 Index Fund +46.03% Invest Now Equity: Mid Cap 0.28%

As this trend continues, it’s worth exploring the factors behind this rise and whether investing in index funds is a wise choice at this point.

Key drivers behind the growth

Shift towards retail investors

Individual investors now hold over 60% of all index fund AUM, according to Zerodha Fund House’ findings.

This marks a shift from the earlier dominance of institutional investors.

The simplicity and accessibility of index funds have made them attractive to retail investors who seek a straightforward way to invest in the broader market.

Higher growth in SIP ticket sizes

Index funds have experienced higher growth in SIP ticket sizes compared to other mutual fund categories. The average ticket size in index funds has grown by 14%, which is notably higher than the 8% growth seen across the broader industry.

(Source: Zerodha Fund House)

This suggests growing investor confidence in index funds as a consistent investment choice.

Rising share of industry folios

Over the past five years, index funds have seen an increase in their share of total mutual fund folios. In September 2019, index fund folios made up only 0.43% of the industry’s total.

By September 2024, that share had grown to approximately 5%.

Passive approach 

Unlike actively managed funds, which rely on fund managers to select securities, index funds simply track the performance of a market index, such as the Nifty 50.

This passive approach results in lower management fees and costs, making them an appealing choice for long-term investors.

Vishal Jain, CEO of Zerodha Fund House, highlighted that the ongoing rise in awareness and accessibility has positioned index funds as a viable option for retail investors seeking exposure to the Indian economy.

Should you consider investing in index funds?

Investors looking for simplicity, cost-effectiveness, and exposure to the broader market may find index funds a suitable choice.

However, as with any investment decision, it’s essential to assess individual financial goals, risk tolerance, and the broader market outlook before making a commitment.

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