ETFs back in demand

With the strong performance by benchmark indices, investors are increasingly opting for ETFs

With the strong performance by benchmark indices, investors are increasingly opting for passive investment options or exchange-traded funds (ETFs). These low-cost investment vehicles mimic an underlying index like the Sensex or Bank Nifty. So far this year, ETFs tracking Indian indices have witnessed highest inflows in emerging markets, followed by Brazil and Colombia, while China saw outflows. 

The general flows into ETFs have been strong on account of a secular uptrend in the markets, with Nifty gains of 17 per cent and Bank Nifty’s 29 per cent. Increasing flows from the Employees’ Provident Fund Organisation and launch of a new central public sector enterprise (CPSE) ETF contributed to the rise, participants said. 

Some of the best performing ETFs this year have been funds tracking Bank Nifty and FMCG index. While inflows into ETFs this year could be higher than other markets, they are still a fraction of $120 billion seen in the US ETF market.

Experts say Indian ETFs will continue to register positive inflows. “India’s ETFs are at the cusp of an exponential growth in the medium to long term. Given their robust performance in the past three years, more and more investors would prefer them over regular mutual fund schemes,” said a top fund manager.