Daybreak Zerodha and Groww wanted to disrupt mutual funds. But they're stuck in first gear
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Apr 8, 2025 In this discussion, Arshish Mayer, a colleague at The Ken who closely follows investment trends, dives into the struggles of Zerodha, Groww, and Navi in disrupting India's mutual fund sector. He analyzes why the anticipated boom of passive investing hasn't materialized as expected, despite its success in the U.S. Mayer highlights the challenges new players face against established firms and the complex landscape that complicates investor choices. The conversation reveals insights into the future of passive funds and the evolving strategies needed for success.
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Passive Funds Struggle in India
- New players like Navi, Zerodha, and Groww bet big on passive funds in India, mirroring US trends.
- However, their market share remains low, only 1% of the total mutual fund industry, despite passive funds tripling in AUM.
SEBI Rule Changes and Market Divergence
- SEBI's 2017 rule changes, limiting fund drift and active funds per category, favored passive funds initially.
- Despite initial growth, passive funds' share shrunk in 2024, unlike the US where they surpassed active funds.
Commission Structure and NFO Performance
- Mutual fund distributors in India prefer active funds due to higher commissions, hindering passive fund growth.
- Active fund NFOs outperform passive ones, with the former growing from ₹3.1 to ₹5.6 lakh crore and the latter from ₹43,000 crore to ₹2.1 lakh crore.