Retail investors bet big on ETFs, especially those in gold

Underperforming equities drive push, trend seems likely to continue

Indian retail investors are betting big on Exchange Traded Funds (ETFs). The category emerged as an outperformer during financial year 2010-11, even as the mutual fund sector witnessed erosion of assets in other categories.

ETFs were the only category which registered a four-fold increase in influx of funds. Net inflows here were Rs 3,638 crore, compared with a meagre Rs 784 crore in the previous financial year. The number of folios jumped from a little over 200,000 to 420,000. The funds thus mobilised were Rs 7,709 crore against Rs 3,535 crore earlier, up 118 per cent.

On the other hand, overall industry folios dropped two per cent, while the average of assets under management slipped 5.6 per cent to Rs 7.05 lakh crore during the year, against Rs 7.47 lakh crore in the previous year.

Rajan Mehta, executive director, Benchmark Asset Management, says, “Investors’ base in ETFs have gone up as the visibility of these products increased. More, investors' mindset is aligning to the fact that it's a simple, suitable product for them and an investor-centric instrument, with a low cost attached to it.”

The industry added seven more ETF schemes in 2010-11, taking the total to 28. Ten of these are Gold ETFs. Says Nitin Rakesh, managing director and CEO of Motilal Oswal Mutual Fund: “The number of retail investors putting money in ETFs is probably the highest at this point of time.”

Interestingly, it is the gold ETFs which have attracted much of the investor attention. Net inflow in gold ETFs has gone up close to three-fold last year, to Rs 2,250 crore.

“With the kind of rally seen in gold prices over the last three years, investors have understood that gold investment could give better returns at a time when equities are underperforming,” explains Mehta. He says lesser returns from equities last year also contributed to the rising number of retail investors in gold ETFs.

“Investors are now willing to put in 10-20 per cent of their overall investments in ETFs,” adds Mehta. The gold ETFs saw investor folios reach 320,000 in 2010-11, compared with 160,000 in 2009-10.

Fund houses are optimistic about continuation of the high trajectory of growth in the ETF category, which has also attracted global MF players to India. The recent deal of Goldman Sachs taking over Benchmark AMC is one signal in this regard.