When you choose a mutual fund, do you prioritise experience or innovation? Many investors find themselves facing this dilemma, as the mutual fund industry continues to evolve.
Back in the 1980s, the first mutual fund houses were launched in India. While some of these AMCs, like SBI, continue to maintain their legacies, newer entrants like HDFC Mutual Funds and ICICI Prudential Mutual Funds have also made their impact with consistent returns.
Today, prudent investors prefer striking a balance between experience and digital-first investing strategies. To help you make an informed decision, we have discussed the differences between these new-age and traditional fund houses.
What Are Traditional Fund Houses?
When we talk about traditional fund houses and AMCs, we typically refer to the ones that were launched between the 1980s to early 2000s. Many of these are backed by PSUs and supported by banks. Some of them were even parts of large financial institutions. HDFC MF, for instance, has well-established processes in place and works with strong research teams.
Often, their investment style is based on fundamental analysis and active management. Investors who value stability and proven performance across different market cycles trust these legacy funds.
What Are New-Age Fund Houses?
As the name suggests, new-age fund houses are relatively new to the markets. These AMCs, such as Taurus Mutual Funds have adopted a more modern and technology-oriented approach to investing.
Investors benefit from digital onboarding and simplified products. Also, many of these fund houses prioritise passive strategies. Some of the new-age fund houses have introduced smart-beta or factor-based funds. Invesco India is a typical example of a new-age fund house. These AMCs are noted for their transparency and low-cost operations. The mutual fund schemes they offer are easily accessible through online platforms and apps.
Key Differences Between New-Age & Traditional Fund Houses
New-age and traditional fund houses differ on several grounds, including their investment philosophy, risk approach, and product strategies.
1. Investment Philosophy
Traditional fund houses typically invest based on their deep bottom-up research. Fund managers working with these AMCs actively pick stocks. The Alpha is manager-driven, and its strategies include:
- Sector rotations
- Thematic calls
- Long-term company analysis
On the contrary, new-age fund houses often rely on rule-based allocation and passive investing. These AMCs offer index-linked products and prioritise factor investing. Their decisions are largely driven by data models.
2. Risk Approach
Traditional AMCs have already weathered the money market in India for at least two decades. They use seasoned strategies to predict long-term risks that have been tested across multiple market cycles. These fund houses prioritise stability, sometimes with a more conservative approach.
New-age fund houses often prioritise dynamic asset allocation and use automated monitoring systems. These systems provide a greater level of transparency to investors on how the AMC manages risks.
3. Product Strategy
Usually, traditional AMCs offer a large portfolio of schemes. They cover almost every segment, from equity to debt funds and hybrids. Some of them even offer FoFs, thematic funds, and sectoral funds.
When you explore the portfolio of new-age funds, you’ll often find fewer and simpler products. Some of them offer index funds, ETFs, and smart-beta strategies.
4. Experience of Investors
With traditional AMCs, you’ll mostly be interacting with relationship managers, branch support, and advisors. Investors who prefer human interaction prioritise this kind of experience.
On the other hand, new-age fund houses design intuitive app-based investing journeys. Investors benefit from digital investments in SIPs and instant KYCs. Those who prefer speed and transparency often invest with these AMCs.
Conclusion
As an investor, you might be wondering whether you should choose a traditional AMC or a new-age fund house. If you are someone who values experience and long-term track record, go for a traditional AMC. On the contrary, new-age AMCs are suitable for those who prefer simplicity and low-cost investing, along with digital convenience.
Smart investors often mix both these strategies while building resilient portfolios. While you benefit from the stability of traditional funds, the new-age ones can make your investments more efficient.
