ETF pioneers return with bets on untapped passive products

15 years.Rajan Mehta and Sanjiv Shah, former co-founders of the mutual fund which started India's first ETF, Benchmark Asset Management Co., have received final approval from the market regulator to launch Lakshya AMC.“Our underlying philosophy will remain passive, and we are not going for the active route,” Mehta told Mint. "Doing stock picking based on research.

That's not our core thing,” said the director and co-founder of Lakshya AMC.The fund house does not plan to compete in crowded segments such as Nifty 50 or gold ETFs. “We would like to create different categories which do not exist today.

We are not going to launch another Nifty 50 ETF or gold ETF, because there are so many people doing a good job at it,” Mehta said.The move comes at a time when the passive assets in India have scaled up significantly to reach ₹15.23 trillion over the past few years. Passive assets now account for about 18% of the mutual fund industry’s AUM, up from 7.3% in FY20.Lakshya AMC, which will file for a product with the Securities and Exchange Board of India (Sebi) soon, will initially focus on fixed-income passive products, using quant-based models.

“We would like to create something very unique and new in this market,” Mehta said.On managing costs in a passive-only model, Mehta said the segment faces structural headwinds in India. “We will definitely be earning less than equity funds.

But then we have to keep the cost lower,” Mehta said.The expense ratio of a passive fund is much lower than that of an active fund. For example, comparing the largest ETF by assets with the largest active fund by assets shows that the former has a direct total expense ratio of 0.04% while the latter has a direct total expense ratio of