Tata MF’s Anand Vardarajan: Balancing Active and Passive Funds to Fill Market Gaps

Tata Mutual Fund has introduced at least 7 passive funds recently. Anand Vardarajan, Chief Business Officer at Tata Asset Management, clarifies that they are not shifting focus from active to passive funds but filling gaps in their offerings.

Complementary Funds:

• Vardarajan explains that active and passive funds are complementary. Active funds seek growth through active management, while passive funds track indices for market exposure.

Nifty India Tourism Index Fund:

• Indian tourism is booming. Last year, tourism contributed $212 billion to GDP, surpassing the IT sector. Despite this, tourism is not represented in Nifty 50, showing untapped potential.
• Hotel industry occupancy rates have hit 70% for the first time, indicating growth. The new fund aims to capture the entire tourism value chain, including aviation, hotels, and booking services.
• As income levels rise, travel spending will increase, presenting significant opportunities.

Sectoral Index Funds:

• Tata MF launched six sectoral index funds to offer investors diverse options. These include unique indices like multi-cap manufacturing and small-mid healthcare.
• The goal is to provide variety and a different investment experience.

Focus on Active and Passive Funds:

• Tata MF is not shifting focus but addressing gaps in their active fund offerings. They now aim to strengthen their presence in passive funds.
• Vardarajan emphasizes that both active and passive funds can coexist and complement each other in a client’s portfolio.

Investor Response:

• Investor response to the new funds has been positive. Tata MF aims to be a preferred choice when passive funds gain popularity.

Risk of Sectoral Funds:

• Sectoral funds can be cyclical, leading to periods of varying performance. Investors should approach them with a long-term perspective and be patient to benefit from the full cycle.

Competition in Passive Funds:

• The passive fund space is becoming more competitive with new entrants like Navi, Groww, and Zerodha. This expansion offers more choices for investors.
• Tata MF is excited about the potential in the passive space, including various index-based, smart beta, and thematic funds.

Differentiation in Passive Funds:

• Tata MF focuses on cost to the customer, including fees and tracking error. They aim to offer competitive and affordable passive funds.

Future of Active and Passive Funds:

• Vardarajan believes both active and passive funds will grow, serving different client segments. Active funds seek growth through managed strategies, while passive funds offer a cost-effective way to track market indices. Both can be part of a balanced investment approach.

Tata Mutual Fund continues to focus on both active and passive funds, offering a range of investment options to meet different client needs and preferences.