Nifty 50 ETF reigns supreme: 95% dominance in India's booming ETF market

Study reveals that ETFs on top 3 broad indices i.e., Nifty 50 ETF, Nifty Next 50 ETF and Nifty Midcap 150 ETF contribute more than 99% of total AUM among broad indices in Equity ETF schemes.

Exchange Traded Funds ( ETFs)  now  hold a significant share – 13 per cent or Rs 6.95 lakh crore – of the total Mutual Fund Industry assets under management (AUM) of Rs 53.40 lakh crore, according to a study by Zerodha Fund House.

This surge in popularity is evident in the dramatic rise in the number of ETF accounts. Since 2017, the number of equity and debt ETF accounts has more than doubled, jumping from 5.33 lakh to a staggering 1.25 crore in 2023. This growth signifies a growing comfort level and understanding of ETFs among retail investors.

ETFs are a type of investment tool available in India that offer a basket of assets like stocks, bonds, or commodities. They trade on stock exchanges similar to individual stocks, but function like mutual funds in terms of diversification.

 

Types of ETFs in India:

• Equity ETFs: Track a particular stock market index, like Nifty 50 or Sensex.
• Debt ETFs: Invest in government or corporate bonds.
• Gold ETFs: Track the price of gold, offering exposure to the gold market.
• Global ETFs: Invest in international stocks or a combination of assets from various countries.
• Smart Beta ETFs: Track alternative indexes based on factors like value or momentum.

ETFs offer several advantages that appeal to retail investors, including:

• Lower costs: Compared to actively managed mutual funds, ETFs typically have lower expense ratios, which translates to more money staying in investors' pockets.
• Diversification: ETFs provide instant diversification across a basket of assets, allowing investors to spread their risk and potentially improve returns.
• Transparency: ETFs trade on stock exchanges throughout the day, offering price transparency and real-time liquidity.
• Convenience: Similar to individual stocks, ETFs can be easily bought and sold on the stock exchange.

The study further reveals a trend towards diversification even within the popular Equity ETF segment.  Over 99% of the total AUM among broad indices in Equity ETF schemes is concentrated in just three major indexes: Nifty 50 ETF, Nifty Next 50 ETF, and Nifty Midcap 150 ETF.

Nifty 50 ETFs dominate the landscape, contributing a whopping 95% of the total AUM within Equity ETF schemes as of March 31st, 2024. This translates to a significant AUM of Rs 2,77,471 crore for Nifty 50 ETFs. While Nifty Next 50 and Nifty Midcap 150 ETFs hold smaller shares (Rs 9,628 crore and Rs 2,284 crore respectively), their presence indicates a growing interest in diversification among investors.

Overall, Equity ETF schemes consist of eight broad based indices and 40 schemes as on date. The includes 18 schemes under Nifty 50 ETF, 7 in Nifty Next 50 ETF, 5 in Nifty Midcap 150 ETF, 4 in Nifty 100 ETF, 2 each in Nifty Midcap 100 ETF & Nifty Smallcap 250 ETF, and 1 each in Nifty MidCap 50 ETF and Nifty 500 ETF. 

Equity, debt and gold ETFs

Equity ETFs:

• The AUM for Equity ETFs has consistently increased, going from Rs 43,234 crores in March 2017 to Rs 5,63,176 crore in March 2024.
•  This category has shown the most substantial growth, highlighting a strong investor preference for equity-based ETFs.

Debt ETFs:

• Debt ETFs have also seen significant growth, from Rs 1,497 crore in March 2017 to Rs 96,163 crore in March 2024.
• The growth in Debt ETFs has accelerated particularly from March 2019 onwards, indicating an increasing shift towards fixed-income securities in recent years.

Gold ETFs:

• Gold ETFs have grown steadily, from Rs 5,480 crore in March 2017 to Rs 31,224 crore in March 2024.
• Between 2017 and 2024, AUM in Gold ETFs has increased by 470%, which is less pronounced compared to growth in Equity (1200%+) and Debt (6300%+) ETFs.

The trading volume of ETFs  has surged 600 per cent from Rs 26,139 crore in FY 2016-17 to Rs 1,83,676 crore in FY 2023-24.

"The trend in passive investing is expected to persist, driven by retail investors in the coming years, as passive products are easy to understand, transparent & affordable," said Vishal Jain, CEO Zerodha Fund House.