'Passive funds to grow severalfold'

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

Valuations are not inexpensive. Yet, they also reflect robust balance sheets, improved governance standards and strong medium-term growth profiles of companies. As investors, we need to keep optimum portfolio diversification, improve liquidity and focus more on stock selection versus large sectoral skews to reduce impact of any potential market correction.

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

Index funds are witnessing significant investor interest and subsequent strong inflows. The equity index funds category was the second-best in terms of net flows in FY25 so far, second only to sectoral/thematic. Within the equity index category, factor-based fund (smart-beta funds) is one of the fastest-growing categories.

Passive investing offers several advantages. While the relatively lower cost is just one aspect of it, the true-to-label characteristic is a big draw. A small-cap index fund, for instance, would invest 100 per cent in small caps, while other formats of small-cap investing may also have large caps, mid caps and cash holdings. By definition, passive funds are rules-based; investors have complete transparency on the strategy. Another noticeable aspect of passive investing is the sheer variety of products, including innovative offerings. Factor-based funds, for example, offer unique investment styles and distinct risk-return profiles. Though 'passive investing' may suggest passive portfolios, the changes, depending on the strategies, could be very dynamic.

Passive funds have arrived, will become a mainstay for investors and grow severalfold in the days ahead.

Will AI impact your business? How and why?

At Nippon India, we focus on enabling a data-driven culture. We believe AI will play a pivotal role in that respect. We have data of 17.5 million unique investors reflecting their buying and redemption patterns, helping us have meaningful interactions and enrich the customer experience. As it is being said that 'data is new oil', we've taken measures to leverage it in many aspects of our business. Our journey to implement AI has already started by focusing on B2C and potential initiatives in risk modelling, investment research, portfolio management, etc. Further, we have implemented a Gen AI-based bot for employee self-service regarding human resource policies, factsheets and compliance.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Power of consistency.
  
• The biggest mutual fund myth you'd debunk.
  Returns are given more importance, whereas it should be risk management and processes.
  
• An unconventional asset class you'd add to your portfolio.
  Companies with a high happiness index.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Bhaag Milkha Bhaag.