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The number of investors trading in exchange traded funds (ETFs) rose to 3.22 million investors in calendar year 2020, a surge of 98 per cent from the figure of 1.62 million investors in the previous year.
Average daily turnover stood at Rs 241 crore for the year, a 15 per cent increase over the year-ago period, data collated from NSE shows. Over the last five years, the turnover has risen over 3.5 times.
Assets under management of ETFs (excluding gold ETFs) stood at Rs 2.56 trillion at end of December last year. The figure stood at Rs 70,353 crore, implying that the assets have grown 3.6 times in the past three years, data from Association of Mutual Funds in India (Amfi) shows.
Assets have grown primarily on the back of steady inflow from the Employees Provident Fund Organisation (EPFO) and provident funds, said experts.
The EPFO had entered the stock market in August 2015. The decision was to invest up to 5 per cent of its investible deposits, which was raised to 10 per cent in 2016 and then to 15 per cent in 2017.
Polarisation has been a consistent theme for the past two years, leading to underperformance of funds, especially large caps. This has also led fund houses to look at passive products more closely. Last year saw 14 ETFs and 5 index funds getting launched (including five ETFs and one index fund since October) that garnered assets in excess of Rs 11,600 crore.
Experts believe that investors are willing to allocate 5-10 per cent of their equity portfolio to index funds and ETFs, which was not the case earlier.
“Passive schemes already dominate in the developed markets and are slowly gaining traction in India. Several new investors have opened a demat account during the pandemic and since ETFs trade like shares its easier to buy and sell them via the demat facility. Lastly, AMCs also want to have an offering on the passive side and do not want their product bouquet left incomplete," said Amol Joshi, founder, Plan Rupee Investment Services.
That said, industry observers believe that active fund management still holds an edge in generating long-term alpha, and passive products are yet to become popular among retail investors. Individual investors still hold less than 10 per cent of the ETF/fund of funds assets as per Amfi's data for December 2020.
"Active investing remains a source of wealth creation simply because unlike some markets in the West, India has a large untapped opportunity for companies to list and grow. Coupled with the fact that markets are yet less efficient, this provides scope to beat benchmarks. We have proven that with our active strategies over reasonably long periods of time," Chandresh Nigam, CEO, Axis MF had said recently during the launch of its ETF.
ETFs try to mimic the securities in their underlying indices such as Nifty 50 or Sensex 30, in the same weightage and are traded on stock exchanges.
