Exchange Traded Funds are Part of
Everyday Lexicon of International Investors
This class of funds are tapped by institutions, professional
investors, and active traders as it offers strong liquidity
T
he Exchange Traded Funds (ETFs)
have become part of everyday
lexicon of international investors,
with the global exchange traded fund
industry smashing past $4.3 trillion
in assets, according to figures from
ETFGI, an industry data provider and
independent research and consultancy
firm. Since the introduction of first ETF
more than two-and-half decades back,
the ETF industry has come a long way,
with appetite for cheaper and passive
alternatives continuing to grow at rapid
pace, predominantly with institutional
and professional investors and individual
active traders.
Raghav Iyengar
Head- Retail &
Institutional Business,
ICICI Prudential AMC
Growing Popularity of
Passive Alternatives
From one fund in 1993, the ETF market
grew to almost 7,000 exchange-traded
products managed by 313 providers.
This class of funds is extensively tapped
by institutional, professional investors
and individual active traders as ETFs
offer strong liquidity, convenience,
diversification, transparency and cost
advantage. ETFs have expense ratios
that are a fraction of the cost of actively
managed fund, which are estimated to
have an average expense ratio of less than
1.5 per cent; whereas ETFs expense ratios
can be as low as 0.05 per cent. This can
make a difference in the returns earned by
investors over a long period of time.
The Exchange Traded Funds are
reshaping the way people are investing
for their financial future. ETFs provide an
opportunity to participate in a growth
story of country’s bellwether companies
and allow investors to diversify risks across
sectors. Over the recent years, intense
competition among ETF providers has
resulted in lowering prices making ETFs
more lucrative investment option for
retail investors.
Evolving Indian
Investment Panorama
India is also fast catching up the
trend with more number of investors
considering ETFs as a medium for
passive investing with an upsurge in
assets and products. India is among
the leading countries globally in terms
of growth in domestic ETFs, as assets
have witnessed tremendous growth in
past three years to about $8.5 billion
and counting. The Indian ETF evolution
that took off with the gold ETFs is seen
moving into a whole new direction,
with the government approving its
divestment strategy through ETF. In
addition, the Ministry of Labour and
Employment approving 15 per cent of
Employees Provident Fund Organisation
(EPFO) flows into ETF investment is a
booster for the domestic ETF industry
that may grow multifold over the next
decade. India should certainly draw
inspiration the way global ETF industry
has exponentially grown over the last
decade, and implement the necessaries
to make ETFs more investor friendly.
India-focused offshore equity
funds and ETFs are gaining immense
popularity among international
investors. The combined asset base of
the India-focused offshore equity funds
and ETFs currently stands at more than
$55 billion. An investor looking to remain
invested for the long term in Indian stock
markets can consider ETFs based on
benchmark indices. One can select ETFs
linked to large-cap indices like Sensex,
Nifty, etc. or mid-cap indices like BSE
Midcap 100, Nifty Midcap 100, etc based
on market-cap orientation.
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