MF investors hike passive play via ETFs, June inflows up 4x sequentially

Industry estimates suggest over Rs 700 crore of fresh flows in July

Investor interest for passively-managed products such as exchange-traded funds (ETFs) has seen a steady rise, with investors increasingly looking at alternatives to actively-managed equity funds.

According to industry estimates, ETFs are likely to draw over Rs 700 crore of net flows in July, while flows towards equity funds could be negative. In June, ETFs had garnered Rs 4,092 crore of net inflows, which was four times higher than the previous month.  “Lot of smart money from high networth investors (HNIs) and ultra-HNIs looking at low-cost products has come into ETFs over the last couple of years,” said Vishal Jain, head-ETF, Nippon India Asset Management.  

“Recently, the driver has been the pandemic, as investors are not sure which sector or stock will survive in this environment, they are opting for index-linked ETFs such as Nifty ETF that offer portfolio of good-quality stocks,” Jain added.  

While equity funds have seen asset erosion of over 12 per cent since the beginning of the year (in terms of monthly average assets), ETFs have seen a little over 4 per cent dip in the same period.

“Investors are considering passively-managed products as returns from actively-managed equity funds have not met expectations,” said Amol Joshi, founder of Plan Rupee Investment Services.

Among individual fund houses, more ETF products are getting launched or filed with the Securities and Exchange Board of India (Sebi) for approval. Recently, Axis MF filed for a banking ETF, SBI MF filed for an ETF focusing on private banks, and another one for consumption stocks. On August 3, ICICI MF will float a new fund offer (NFO) for Alpha Low Vol 30 ETF, which will track the Nifty Alpha Low Volatility 30 Index. The NFO closes on August 10. ICICI MF’s NFO will give investors exposure to a multi-factor strategy in an ETF, rather than a single investment strategy.

Experts say investors are becoming more aware of smart-beta products that can passively manage the portfolio, while also control risks. “Investor awareness has progressed. They understand the wide-range of products that is being offered in the industry,” Joshi added.

“There is investor demand for ETFs. Our platform will also be able to facilitate ETF transactions soon,” said Harsh Jain, co-founder of Groww, a digital investment platform. Meanwhile, advisors suggest that actively-managed equity funds have come under heavy redemption pressures in July.

“We are seeing redemptions in July, which we had not seen so far despite the Covid-19 outbreak,” said Srikanth Matrubai, chief executive officer, Srik Kavi Wealth.

In June, average investor assets in ETFs stood at Rs 1.7 trillion. Equity funds managed Rs 6.89 trillion of assets. While ETFs are seeing traction, industry executives say that both actively- and passively-managed funds are likely to co-exist and have relevance across different market cycles.