Retail folios in Index funds have skyrocketed around 12X, growing from 4.95 lakh in 2020 to 59.37 lakh by December 2023. This clearly shows the rising interest of retail investors in passive investment strategies.
In this blog, we’ll discover the major factors driving 12X growth in Index funds among retail investors. Let’s begin!
Factors Behind 12X Growth of Index Funds Among Retail Investors
Here are the six factors that have contributed to driving 12X growth in Index funds among retail investors.
1. Market Volatility and Economic Uncertainty
In 2020, the COVID-19 pandemic has created an unprecedented market volatility and economic uncertainty. During this time, the stock market crashed, and even after the market recovered, stock prices fluctuated greatly.
This has encouraged potential investors to look for safer investment options, like Index funds. It offers diversified exposure to the broad market index and reduces the risk associated with individual stocks.
Hence, the Index fund’s perception of more stable and reliable investment options has been a primary driver of growth among retail investors.
2. Increased Financial Literacy and Access to Technology
In recent times, financial literacy has drastically improved due to the increasing number of financial institutions.
Moreover, individuals are also seeking authentic and reliable knowledge sources to learn efficient investment strategies. This has led to retail investors’ interest in passive investing through index funds.
In today’s era, digital platforms have also simplified the investing game for retail investors. It helps investors to easily research, compare, and invest in their desired index funds using mobile apps or online brokerage platforms.
3. Cost Efficiency of Index Funds
One crucial reason for retail investors’ drive towards index funds is their cost efficiency. Index funds have lower expense ratios than other managed funds.
Simply put, index funds offer lower costs and solid performance, making them an appealing investment option for retail investors looking to earn long-term profits with minimal risk.
4. Shift in Investment Strategies
The trend towards passive investment has become more popular as investors recognize the limitations of active management. In fact, over a period of time, investors have also observed that many actively managed funds have underperformed their benchmark indexes.
This has led many retail investors to adopt a buy-and-hold strategy, favoring index funds that track market performance.
5. Government Initiatives and Regulatory Support
The Indian government has also taken certain initiatives to encourage retail participation in the stock market. For instance, the SIP (Systematic Investment Plan) is one of the initiatives taken by the Indian government to encourage retail investors to invest in mutual funds for the long term.
Hence, the government’s support for mutual funds and the creation of tax-efficient investment vehicles has also encouraged retail investors to consider index funds for their portfolios.
6. Positive Market Sentiment and Wealth Creation
After the pandemic, retail investors have inculcated a sense of optimism. Thus, index funds are considered amongst the safest and growthful opportunities in the stock market.
This has also created a positive sentiment with Index funds that surround the stock market and its potential for wealth creation. This simply motivates many retail investors to participate.
Conclusion
In summary, increasing retail participation is attributed to the six above-mentioned dynamics. These factors enabled retail investors to prefer Index funds as the best investment option. We hope this blog helps you determine the driving factors of increased retail participation in Index funds.Â
