Statsguru: Six charts show the rapid rise of ETF investing in India

Exchange traded funds (ETFs) are reported to have close to $10 trillion in assets in 2021 globally, with a record-breaking $1 trillion inflow this year alone. 

They have also been picking up steam in India. Investors can easily purchase units of such schemes on the stock exchange when investing and simply sell the units when they want their money back. Many use ETFs to invest in gold in addition to equity. 

The Securities and Exchange Board of India recently cleared the way for silver ETFs. An ETF typically tracks prices by replicating an index without active fund management. Costs are accordingly lower than active funds, as is the risk of significantly underperforming markets. Such funds saw Rs 95,677.5 crore in inflows since March 2020 (chart 1).

 

The inflows meant that the ETF share in total mutual fund assets is now around 10 per cent (chart 2).




Gold ETF were dominant earlier, but the tide has turned in favour of equity ETFs. The latter now account for over 82 per cent of ETF assets (chart 3). 

 

The flow into ETFs may also be driven by the underperformance of some actively managed funds, though category returns across segments have been robust because of rising markets (chart 4).

 

A similar trend in the US has also seen a flight towards passively managed funds. Funds were often forced to cut down expense ratios in a bid to more closely match index returns and retain investors. The expense ratio was less than 1 per cent in 2000, and has more than halved by 2020 (chart 5). 

 

An analysis of a sample of 10 actively managed funds’ median expense ratios over the last seven years shows a similar falling trend. Although the median expense ratio is still over 1 per cent, a further fall may be ahead going by the trend in developed markets (chart 6).

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines