With most actively managed equity funds disappointing investors and debt funds registering steady outflow due to crisis, inflows into exchange traded funds (ETFs) saw a sharp surge. Mutual funds too have hit the bandwagon to launch series of index and sector specific ETFs to attract fresh investments.
Excluding Bharat Bond ETFs, inflows into ETFs have jumped nearly eight times in first two quarters of this fiscal to ₹354 crore against ₹45 crore logged in the same period last year while eight new ETFs have been launched against three last year.
In fact, L&T and Motilal Oswal mutual funds have braved the Covid pandemic and raised ₹158 crore through three ETFs during peak of Covid in April.
Growing AUMs
However, government mop-up through Bharat Bond ETFs issue in July was lower at ₹11,024 crore against ₹11,533 crore raised through CPSE ETF Further Fund Offer-5 in July 2019.
The assets of ETF have jumped 46 per cent in first two quarters of FY21 to ₹2.31 lakh crore against ₹1.59 lakh crore logged in the same period last year. The AUM of Gold ETFs increased 142 per cent to ₹13,590 crore against ₹5,613 crore while index funds’ assets increased 91 per cent to ₹12,581 crore (₹6,572 crore). AUM of other ETFs, which include theme-based and sector-specific funds, were up 39 per cent at ₹205,235 crore (₹147,187 crore).
Investors are wooed to passively managed ETFs due to the low cost of between 0.05 per cent and 0.50 per cent against an expense ratio of up to 2.5 per cent levied on actively managed equity funds which invest mostly in top 10 stocks by market cap. Most distributors are convincing investors redeeming from debt funds to try ETFs for portfolio diversification. The lower cost also attracts investments from public institutions such as EPFO, private provident funds and large corporates.
Swarup Mohanty, CEO, Mirae Asset Investment Managers India, said: ETFs generally come into focus when alpha generation becomes difficult due to improvement in equity market efficiency and Indian markets are currently in that phase.
Himanshu Srivastava, Associate Director Manager Research, Morningstar India, said ETFs make a good investment option from the diversification perspective as they deliver index tracking returns at a very low cost. Though actively managed funds have been through some tough times, a well-managed fund can continue to outperform the benchmark index over the long term, he added.