Cover Story
and their whims. This
made Indian markets
more volatile because
Both the regulators
asset allocation of foreign
and the government
investments
depended
understand that returns
a lot on both global and
are under pressure and
local developments. Over
they would like to ensure
the last three years,
that distribution cost
Indian equities have
should not affect returns.
delivered steady returns
ETFs allow investors an
because the government
opportunity to generate
has taken steps to
decent returns at
ensure that markets
low cost.
are insulated from the
vagaries of foreign capital
Anuradha Rao
flows. Take for instance,
Managing Director and CEO,
increase in investment
SBI Mutual Fund
of incremental inflows in
EPFO into Indian equities
from 5 per cent in 2015 to
15 per cent at present.
In a steady state when
the indices are rising
steadily upwards, generating alpha
(index beating returns) is rather
difficult. Explains Sundeep Sikka,
Do ETFs score over
CEO of Reliance Nippon Life Asset
large-cap mutual funds?
Management
Company:
“Like
Indian markets have undergone a
any industry, financial services too
structural shift over the last three
are maturing in India. It is impractical
years. Policies of the government have a lot
to do with this shift. Earlier, Indian equities were that large-cap funds can charge 3.5 per cent
largely driven by foreign institutional investors management fees. Why on earth will someone pay
such a high fee because the alpha that an active
fund house will generate will not justify the
management fee. I clearly see ETFs challenging
Investment Activities: Then & Now!
large-cap funds. Natural maturity will lead
market moving to ETFs from large-caps.”
Nov 2016
Oct 2017
Few fund houses like Reliance and ICICI
MF AUM (` Cr)
1650011 2141346
30%
Prudential are realising that generating returns
higher than the benchmarks to justify high
EQ AUM (` Cr)
531575 855449
61%
management fees will be tough. ICICI Prudential
for instance has filed for 8-9 ETF products
MF Folios
5.20 Crs. 6.32 Crs
22%
because it needs to have more such offerings as it
is a financial super market. But, some large fund
EQ Folios
4.17 Crs. 5.15 Crs
24%
houses still believe that India is an active market
EQ. Avg. Ticket Size (`)
1,27,603 1,65,984
30%
and fund managers will continue to outperform
the benchmark indices.
Fund managers typically charge investors 2.5-
MF Inflows (` Cr)
36021 51148
42%
3.5 per cent of assets as fees. Once an investor
EQ Inflows (` Cr)
12711 21899
72%
factors in these charges, the returns in the
hands of investors would be that much lower.
Monthly Folio Addition
6.96 Lks 10.27 Lks
48%
Like in gold jewellery, making charges are a
Source: AMFI
percentage of the gold price, expense ratios
retail investors. Globally,
assets worth $4.4 trillion
are being managed by
5179 ETFs and investors
are choosing a passive
investment
strategy
rather than an active one,
where expensive fees are
paid to fund managers
who very often don’t beat
the benchmark indices.
Beating the market
or benchmark indices
depends on a number
of factors like volatility,
depth of the market, and
deviation between the
performance of stocks
and benchmarks. BSE’s
Chauhan asks: “Why
do you want to take a
fund manager risk when
you are already taking
market risk?”
38
Outlook Money December 2017 www.outlookmoney.com