Exchange Traded Fund (ETFs) are rapidly gaining ground in the Indian market, but investors are still discovering this product and its benefits. In a special webinar series, we are bringing together industry experts to understand how ETF investments can boost your portfolio, the dos and don’ts to follow and explain how it can help you diversify your investment journey.
In the first webinar titled ‘Making ETFs more Mutual’, CNBC-TV18’s Sumaira Abidi delved into decoding ETF investments with Swarup Mohanty, CEO, Mirae Asset Investment Managers (India) Private Limited, and Siddharth Srivastava, ETF - Product Head, Mirae Asset Investment Managers (India) Private Limited.
Here are excerpts from their discussion:Sumaira: Is ETF really the next big thing? And is the time right for ETF to take off in India?
Swarup: In the investment world, arguably the most notable disruption has been the rise of ETFs. In the last decade or so, the AUMs have grown from say USD 5 trillion to USD 6.6 trillion, which is twice the size of India's GDP. And this is only a 3-decade product. ETF is an investment product that is transparent and accessible to investors and usually comes with a low cost. The tradability feature of the ETF also gives it an edge. This has given passive products, including ETFs, a great momentum globally. Today, both index mutual funds and index ETFs account to almost 19% of total net assets in US last year. It's interesting to note that last year, AUMs of passively managed equities surpassed the AUM of actively managed funds. At the core of this adoption lies the simplicity of the product, and that makes it appealing. Today, with the help of ETFs, an investor sitting in the US can access the markets and vice versa. Even the exotic ETFs are appealing to investors due to the transparent nature of its methodology; and the low active risk. In India, several developments have taken place in last 5-6 years. The government uses ETFs as a preferred route for disinvestments, which has increased the participation of Indian investors.Sumaira: The Indian market has been quite late to catch up on ETFs. What are the latest trends you're seeing globally and how does it compare to the Indian market?
Siddharth: Back in 1993, when S&P 500 ETF was first introduced it was with the intent of trading a fund which tracks S&P 500 at a low cost. This was because actively-managed funds were finding it increasingly difficult to outperform the S&P 500 index, which we are now seeing in the Indian markets as well. So now ETFs are being used for multiple things, such as to take long-term strategic allocation using a simple ETF like S&P 500 or Nifty 50 (in the case of India) or a short-term tactical asset allocation using a sector ETF or a theme-based ETF. ETFs are also being used to create model portfolios depending on the investor's risk profile and requirement. Also, now during the re-balancing and while the portfolio decision is being made, just to reduce the cash track, the exposure is being taken via ETF to at least generate the market returns (subject to tracking error) during this period. Now especially, ETFs are being use to take exposure in emerging markets or frontier markets. On the product side, in India we are still catching up. We are still talking about plain vanilla ETFs like Nifty 50 or Sensex. The global ETF market has evolved much more. There the talk is about ESG-based ETFs to do sustainable investing. Or a smart beta based ETF which uses factors like low volatility. Even debt-based ETFs are getting a lot of traction globally. It's interesting to note that there have been a lot of emerging themes and strategies like cannabis-based ETFs or cloud computing based ETFs because with such exotic products you can get a lot of transparent yet focused exposure in those particular themes.
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