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The assets under management (AUM) of exchange-traded funds (ETFs) have touched a record high following a fourfold jump over the past two years.
Industry watchers say that domestic investors - who are known for their preference for actively managed funds - are increasingly taking to ETFs, a passive investment vehicle.
An ETF is a security that tracks an index, a commodity or a bond as an underlying asset. ETFs trade like a stock and can be bought or sold throughout the day as long as the market is in action. The cost in such funds is substantially lower than those of actively managed funds.
In June this year, the AUM of ETFs stood at Rs 19,159 crore - a four-fold increase from Rs 4,528 crore at the end of FY14.
A significant traction happened in 2015-16, when the total net inflows in ETFs were to the tune of Rs 8,724 crore - nearly four times of what the category witnessed in 2014-15. ETFs’ assets have soared despite the stock markets remaining flat in the past year.
“As the awareness about ETFs is rising, investors are slowly coming on board for the product. However, ETFs have their risks as such products are based on indices, which constitute companies that have already become big in market capitalisation. India is a play for active management as fund managers can pick high growth companies much in advance and generate better returns than what an ETF does. I believe, actively managed funds can offer much more to investors in the long run,” says Rajiv Shastri, chief executive officer of Peerless Mutual Fund.AUM of ETFs in the corporate segment has increased 12 times in the past two years. The retail segment, too, has seen traction. The total number of folios in ETFs is 276,710 as of June 2016 against 210,410 two years ago. The period saw the mutual fund sector nearly doubling the number of ETF offerings to 48 from 26.
According the latest data available till March 2016, retail folios constituted 96 per cent of the overall accounts, commanding assets worth Rs 850 crore. Two years ago, these stood at 190,000 with asset of Rs 490 crore. AUM belonging to corporate entities was Rs 12,340 crore in FY16, a 12-fold increase from Rs 1,075 crore in FY14.
Currently, the equity asset size (diversified equity funds and equity linked savings scheme) is Rs 4.3 lakh crore. ETFs are only four per cent of equity AUM.
