'Index funds are far from being a passing trend'

How is your team viewing the current market valuations and preparing for possible corrections?

The ongoing rally has encompassed all sectors, from Investments to Consumption and Exports. Consequently, markets are relatively expensive compared to about a year and a half ago, when one could find value. Over the past 3-4 years, many sectors experienced earnings upgrades through topline and margin surprises. However, as this phase ends, it's unrealistic to anticipate that margin surprises will continue happening quarterly for every company. Therefore, consolidation is expected.

We have repeatedly highlighted that markets may never go straight but might witness bouts of consolidation or volatility. Nonetheless, one should remain invested rather than trying to time the markets. This is how we view investment opportunities in funds and buy into declines.

Are index and factor-based passive funds a fad or a lasting investment strategy?

Index funds are far from being a passing trend. Let's look at their growth. During the 1990s, passive funds comprised nearly 2 per cent of the total AUM (net assets) in the US. By 2013-14, this figure rose to approximately 17 per cent. Today, passive funds account for around 50 per cent of the total AUM. India is experiencing a similar trend. Currently, passive funds represent 17 per cent of the total AUM, up from just 2 per cent a decade ago. This indicates a significant growth opportunity in the Indian passive funds segment. At Axis AMC, we are very focused on expanding our passive business. The recent launches are a testament to this.

Will AI impact your business? How and why?

Integrating AI isn't just a trend but a transformative force reshaping industries, and so is the case for AMCs. But we believe in using AI for the purpose it serves and not as a fad. For us, improving operational efficiency is key, which is largely visible in marketing, where turnaround times have reduced. Likewise, enhancing customer experience through call centres is another area where we are introducing AI.

Rapid fire questions

• If your fund house had a superpower for investors, what would it be?
  The power of 'future vision' - helping investors see the long-term potential of their investments.
  
• The biggest mutual fund myth you'd debunk.
  That mutual funds are complicated and you need to be an expert to invest. It's simply untrue. All you need is good guidance and a bit of patience.
  
• An unconventional asset class you'd add to your portfolio.
  Art, as it allows for diversification across various styles, mediums and artists.
  
• A Bollywood movie that best represents the mutual fund industry today.
  The movie on a bachelor trip to Spain. Like the film, investing is about enjoying the journey while balancing risks and rewards.

This article was originally published on October 24, 2024.