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are also a percentage of funds invested . Higher expenses impact returns when investors redeem their mutual funds units . So , if a large diversified equity fund has to charge 3.5 per cent as fees , the fund has to give returns that are higher than the benchmarks to justify the cost . Imagine this , if the Sensex returns 15 per cent in a year , an actively managed fund will have to generate returns that are at least 4-5 per cent higher if it has to charge a 2.5 per cent management fee from investors .
In comparison , ETFs charge only 20-50 basis points ( 100 basis points make one per cent ) and tend to deliver returns that are marginally lower than benchmark indices they track . Deepak Jasani , retail head of HDFC Securities , which is one of the largest intermediaries for ETFs , says : “ We have been pioneers in pushing ETFs to our retail clients and believe that retail investors should look at it even though the market for ETF has not grown to the extent it should have . This is due to lack of awareness among investors because equity is a push product in India .”
Inflows since Dec ' 16 till Oct ' 17
Total MF Net Inflow Equity Net Inflow Total MF Folios added Equity Folios added
` 2,93,279 Crore ` 1,96,727 Crore 1.11 Crore 98.79 Lakh
Net EQ Invt since De-Mo ( Dec ' 16-Oct ' 17 )
By FIIs By MFs
Source : AMFI , NSDL , and Reliance Nippon Life AMC
We have been pioneers in promoting ETFs among our retail clients and believe that retail investors should look at this low-cost index tracking product even though the market for ETF has not grown the extent it should have .
` 26,953 Crore ` 1,05,809 Crore
Deepak Jasani Retail Head , HDFC Securities
Regulatory push for ETFs
The government is keen to push low-cost equity products like ETFs , which is why it is taking the ETF route for all its divestment programmes . The response seen by all the CPSE ETFs has been very good as the upfront discount given to the investors has helped generate double-digit returns for the investors . Both institutions and retail participation has been healthy in these funds .
Additionally , the government has also allowed the EPFO to invest upto 15 per cent of its incremental flows into equity ETFs . So far , `43,000 crore of this money has gone into equity ETFs , which has propelled the rise of the benchmarks . The NSE too has been promoting ETFs to investors as they provide attractive returns at low cost . The exchange has also organised several investor camps in partnership with market regulator SEBI to educate retail investors on ETFs .
In FY15 , the labour ministry , for the first time , mandated employee provident funds to invest a minimum of 5 per cent investment of incremental flows into equity . This has been increased to 15 per cent of incremental flows in FY17 . This flow is directed into equities through domestic ETFs . Morgan Stanley believes that the government ’ s move could imply additional flows of `30,000 crore into Indian stocks through ETFs . These flows will not only support markets , but also further reduce volatility in the markets , making it that much more difficult to beat the benchmark indices .
The Securities and Exchange Board of India ( SEBI ) too has been nudging the industry towards becoming more transparent while disclosing returns . The regulator wants mutual fund houses to benchmark equity schemes against the Total Returns Index ( TRI ), which will give a true picture of the returns generated by these actively managed schemes when compared
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Outlook Money December 2017 www . outlookmoney . com
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