ETFs are increasingly gaining widespread acceptance as investment vehicles, thanks to their low expense costs and simplicity.
Passive investing has always occupied a significant share internationally and now the Indian passive investing space, too, is gaining traction. For instance, Nithin Kamath-led Zerodha, which has received in-principle approval and license to establish its mutual fund business in India, has announced that the fund house will focus particularly on passively-managed, low-cost schemes.
SEBI’s recent annual report also underlined the massive, untapped potential of passive funds in India. “Passive funds in India have tremendous scope to grow as the AUM under passive funds in India is still low as compared to its global peers”, it noted.
Another case in point is that of Navi mutual funds, which is in the process of introducing 11-passively managed schemes in the country, including one that would be investing in the ETFs of the US-based pioneers of passive investing, the Vanguard Funds.
ETFs (Exchange Traded Funds) have seen a substantial spike in investor interest over the course of this year. Per AMFI (Association of Mutual Funds of India) data, in January 2020, the total AUM (Assets Under Management) for ETFs (including gold), stood at around Rs 1,84,000 crore. This figure rose to Rs 3,16,289 crore, as of May 2021.
The steady performance continued well into the quarter ended June 2021. Excluding gold ETFs, there are, at present, 97 ETFs that saw a cumulative inflow of Rs 10,929 crore, per AMFI quarterly data release.
In fact, the popularity of ETFs is further solidified by the fact that the proportion of ETF AUM to total mutual fund AUM rose sharply to 9 percent at the end of FY21, compared to a meager 2 percent back in FY16!
What are ETFs?
ETFs are increasingly gaining widespread acceptance as investment vehicles, thanks to their low expense costs and simplicity. Independent financial strategist Nema Chhaya Buch also advocates for ETFs, especially for amateurs. “ETFs are low-cost investment options that are in line with market movements. Hence, novice investors can opt for ETFs to start off their market journey,” she says.
ETFs are a mix of various underlying stocks that mirror the composition of the index they track, which can either be Sensex, Nifty, or any other. The NAV (net asset value) of these underlying stocks determines their trading value. Take a look at five international and five Indian ETFs that performed exceedingly well last month. Notably, the S&P 500 gained 2.9 percent and the Nasdaq Composite index rose 4 percent last month. The blue-chip Dow Jones Industrial Average also inched 1.2 percent higher in the corresponding time. International ETFs
|Name of ETF||Expense ratio (in basis point)||Monthly growth for August (in percent)|
|SPDR S&P Semiconductor ETF ||35 ||6.7|
|Invesco S&P 500 Pure Growth ETF||35||5.4|
|VanEck Biotech ETF||35||5.3|
|First Trust Nasdaq Bank ETF||60||5.1|
|iShares U.S. Technology ETF||41||4.9|
Source: Yahoo Indian ETFs trading internationally
|Name of ETF||Expense ratio (in percent)||Yearly growth (in percent)|
|iShares MSCI India Small-Cap ETF ||0.81||71.8|
|First Trust India NIFTY 50 Equal Weight ETF ||0.80||52.3|
|WisdomTree India Earnings Fund ||0.84||54.4|