Over the past few months, we have seen that active funds are seeing money coming in and there was a time when there were only outflows, but the passive funds are now matching it. In fact, if you look at just the last month, there were more money coming into passive funds than equity funds.

In this episode of ‘Mutual Fund Corner’, CNBC-TV18 spoke to Ashutosh Bishnoi, MD, and CEO; and Krishna Sanghavi, CIO, Equities of Mahindra Manulife Mutual Fund. They will talk about the raging active and passive funds debate and how do you make that call.

On the scope of active management in India, Bishnoi said, “In markets, generally speaking, passive plays a role of being the introductory product for those people who don't wish to load too much risk in their portfolio. Theoretically, they should go to the passive first, try out investing in indices, and then if they feel capable of taking more risk with an active manager, they should transfer to an active manager. But in our market, as in other markets in the world in practice, it works the other way.”

“Generally speaking, actively managed funds, if they become so large as a group, so large as a percentage of the total market cap of the market there is an ability to add alpha, what we call alpha, which means the additional plus return over and above the index, that becomes very limited because you are as a group, the market.”

“When you are in the market, you cannot act, you cannot add alpha and that is when the passive products become interesting because they tend to be cheaper and that is generally how the evolution happens. I am happy to see that in India, we are now reaching an evolutionary stage a little bit earlier than what would normally happen.”

Also, Mrin Agarwal of Finsafe India will weigh in on what are bundled exchange-traded fund (ETFs) exactly and how do they differ from mutual funds.

On bundled ETFs, she said, “These are ETFs that are bundled together in a basket and they are bundled by wealth management firms, for example, brokerages, and essentially they are available as a basket of ETFs. I am sure you have heard about a basket of stocks and now it is a basket of ETFs that are available. Then there is regular rebalance advice that is provided by the creator of the basket. So, this is basically how it works.”

Watch accompanying video for more.

(Edited by : Bivekananda Biswas)