change with time as these funds have become the
vehicle of choice in other world markets for both
institutional and retail investors. Morgan Stanley
expects retirement funds to invest $170 billion
into such funds by FY26.
As Indian financial markets mature, equity
products that generate returns which closely
track the benchmark indices will become more
Key Index Performance over 1 year
Benchmark
% Change
S&P BSE SmallCap
S&P BSE MidCap
S&P BSE 500
S&P BSE 200
S&P BSE 100
S&P BSE LargeCap
Nifty 50
S&P BSE Sensex
35.4%
27.6%
24.7%
23.1%
22.8%
22.2%
21.1%
20.9%
ETF’s Annualised Returns
AUM in crores (Figures Annualised return
as on 6th Nov)
in last 1 year
ETF's
ETF Nifty
ETF Sensex
Banking ETFs
Gold ETFs
Debt ETFs
CPSE ETF
31,646
9084
7074
5300
1809
5082
24.50%
25.30%
34.85%
7.27%
4.92%
25.12%
Source: LIC Mutual Fund research
Market share of largest ETF providers
by assets as on Sep 2017
2.8 %
2.2 %
3.4 %
4.1 %
4.2 %
14.5 %
18.6 %
50.3 %
Reliance AMC ICICI HDFC MF
UTI AM Kotak Mahindra Others
SBI LIC Nomura
www.outlookmoney.com December 2017 Outlook Money
magine walking into a retail store and
seeing two similar products priced
differently. Which one would you
choose? Obviously, the one that is
priced less, if all other things remain
the same. It is time then that investors view
financial products in the same light as they do
other products because the charges you pay
to manufacturers erode returns. This is more
relevant for investments made in large-cap
equity mutual funds because their expense
ratios are anywhere between 2.5-3.5 per cent.
So, if investors are looking at participating
in equity markets at significantly lower costs,
then passive investment options like exchange
traded funds (ETFs) make for a compelling
option. ETFs are similar to mutual funds, but
they follow benchmark indices like the Nifty
or Sensex. On the other hand, mutual funds are
actively managed by fund managers. Among
other reasons, actively managed funds charge
higher management fee because such funds can
generate higher returns than the benchmarks.
But even globally, it is widely accepted that
beating the benchmarks is becoming tough. So
if a fund manager cannot beat the benchmark
and continues to charge higher expenses, then
returns will be comparatively lower.
Interestingly, in developed markets like the US,
such passive funds have consistently done better
than actively managed funds. Says Ashishkumar
Chauhan, MD and CEO, BSE: “Internationally,
ETFs have taken over the world such that they
are bigger than all funds. An ETF investor knows
exactly where the money is invested and that too
at lower costs. In an ETF, the cost of distribution
goes away as funds are traded on the exchange.”
ETFs are nothing but a bunch of listed securities
that investors can buy as units on exchanges.
ETFs have been around for several years now, but
they are gaining currency only now as Indian
markets are maturing. In August 2015, the
government allowed Employees' Provident Fund
Organisation (EPFO) to invest upto 5 per cent
of the incremental flows into equity markets
through the ETF route. Now, 15 per cent of
incremental flows are invested in equity ETFs.
Even though it is a cheaper investment option
with returns almost identical to those of the
benchmark indices, ETFs are not yet popular
with retail investors. But, this is expected to
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