Mehul Shah, an MFD based in Baroda and founder of RIQR, manages an AUM of Rs.250 crore. Of this, Rs.150 crore—or 60% of total mutual fund assets—is invested in passive funds.
At the Cafemutual Confluence 2025, Mehul emphasized that MFDs can leverage passive funds to counter direct plans. Even regular plans of index funds are often cheaper than the direct plans of actively managed equity funds, he said.
He advocates for passive funds due to their low cost, low or no exit loads, and market-linked returns. He also noted that it’s easier to book profits in index funds and ETFs because of minimal or no exit loads. In active funds, investors typically pay a 1% exit load if they redeem within a year, an amount that can be significant for large redemptions. In contrast, passive funds often have much shorter exit load periods of 30 days, 12 days or even just 3 days.
Additionally, charges to clients are significantly lower. Mehul suggests that MFDs should be willing to compromise on brokerage in passive funds and instead focus on enhancing client returns. He believes, “If something is good for investors, it is best for distributors.”
Impact of passive funds on distribution business
Although revenue from passive funds is nearly 50% lower, Mehul believes the overall business growth has been much stronger. He has observed more frequent purchases, more referrals and better client retention.
Mehul also deals in ETFs and believes they are better than direct stock investments due to lower risk and more balanced returns. For example, a banking ETF includes a diversified mix of ICICI, HDFC, Axis, and others. Similar options are available for metals and commodities. For broking clients, he prefers recommending ETFs over individual stocks.
No confusion
Mehul has noticed that while clients often start with long-term intentions, they begin to question their investments when immediate returns aren’t visible. During recent market volatility, many clients felt they had missed out. To address this, Mehul takes them through the historical performance of indices which has doubled investors money in five years irrespective of economic situation.
He also observes that top-performing active funds tend to change every 4 years, leading clients to frequently ask whether they should exit older funds. This type of confusion is far less with index funds.
HNI clients are generally more aware of index funds, as they tend to stay informed and are cost-conscious. Retail clients, on the other hand, need simple explanations.
Advice to AMCs and Distributors
Mehul believes that awareness of passive funds should increase. He suggests that campaigns like Mutual Funds Sahi Hai should highlight index funds more prominently, as many clients are still unaware of the full range of passive products available.
His advice to fellow distributors is that the next two decades will belong to knowledge. He urges them to keep educating their clients regularly.
To watch the full session, click here.
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