Cerulli Associates, the world-girdling research firm that studies asset, fund and wealth management, has detected increasing activity in the passive segment of the Indian mutual fund industry because of regulatory activity.

The research firm told Compliance Matters: "The regulator and government have been the largest drivers of growth since the beginning. The biggest participant in India’s exchange-traded fund (ETF) market is the Employees Provident Fund Organisation, which has allocated 15% of its investable assets to ETFs. Regulatory measures such as the categorisation of mutual fund products, focus on digital channels and adoption of a trailer-fee based model have provided the impetus for the leap towards passives. The scheme categorisation rule has limited the scope for innovation in the mutual fund segment, while the new trailer-fee based model has resulted in fee pressures and caused the industry to consider low-cost products.

Amid the markets...

"Furthermore, as managers struggle to achieve alpha through traditional mutual fund products amid the volatile stock markets, they have turned to passive investments such as ETFs and index funds in hopes of growing asset under management (AuM). Cerulli’s conversations with managers have revealed that, aside from the cost benefits associated with ETFs, digital marketing and advertising are expected to support the push of passive products to retail investors."