The investors in low-cost index funds are laughing all the way to the bank after the recent run-away rally in most of the key indices with constant inflow from domestic and foreign institutional investors.

The asset under management (AUM) of index funds (excluding ETFs) has more than doubled last month to ₹1.83-lakh crore against ₹88,265 crore logged in the same period last year. Among index funds, SBI MF’s AUM has more than doubled in June to ₹22,226 crore (₹8,279 crore).

Similarly, ICICI Prudential MF and Aditya Birla MF’s AUM increased to ₹21,856 crore (₹10,678 crore) and ₹21,128 crore (₹10,076 crore). HDFC MF and UTI MF AUM rose sharply to ₹19,226 crore (₹10,273 crore) and ₹17,394 crore (₹10,473 crore).

During the period, Nifty and Sensex jumped nearly 22 per cent, while NSE Midcap 100 and NSE SmallCap 100 gained 34 per cent and 15 per cent respectively.

Besides being low-cost, investors have taken keen interest in passive funds as many actively managed funds are lagging behind their benchmark indices.

Icing on the cake

Fund houses are also competing among themselves to attract investors by charging lower fees.

Edelweiss Mutual Fund has emerged the lowest-cost index fund investment provider across all categories in the industry. The fund house charges as low as five paise for its Nifty 50 index fund, while its immediate competitors and latest entrant Navi MF and Bandhan MF charge 6 paise and 10 paise as expense ratio.

In the small-cap index fund, Edelweiss charges 14 paise while Axis MF and ICICI Pru MF levy a fee of 25 paise and 30 paise, respectively. In the quality factor index funds, Edelweiss Nifty 100 Quality 30 Index Fund charges a fee of 14 paise, while it is 34 paise and 41 paise for DSP Nifty Midcap 150 Quality 50 Index Fund and UTI Nifty Midcap 150 Quality 50 Index Fund, respectively.

Low expense ratio

In fact, Edelweiss has limited total expense ratio across passive funds to 14 paise to attract investors in a highly volatile and uncertain market.

Varun Sanan, Head - Passive - Sales, Edelweiss AMC, said lower expense ratios enhance tracking precision, keeping passive funds closer to their benchmark performance and provide investors with optimal returns at minimal costs.

With over ₹7-lakh crore AUM, passive funds have gained momentum and are expected to grow at an accelerated pace in the coming years due to increasing awareness, he added.