ETFs still unknown to retail investors

Exchange traded funds (ETFs) and its variants have become the mainstay of passive investment, globally. It has exploded over the years since its inception in 1990. Today it leads to passive investing. In a span of fewer than 30 years, ETFs account for 16 per cent of the total US equity assets compared to 61 per cent by actively managed funds and 22 per cent by passive mutual funds like index funds.

Indian markets have also followed the global trend and have seen a spectacular rise in the subscription to passively managed funds. Since the start of FY14, the passively managed assets in India have almost doubled every year. It has increased from Rs. 2,431 crore at the end of FY13 to Rs 74,064 crore at the end of FY18. The growth in index fund has, however, remained laggard. AUM of ETFs has grown at an astounding pace of 118 per cent, annually since the start of FY14.

Nonetheless, this growth in the ETF is primarily led by institutional investors in India. In the last one year ending October 2018, ETF's asset under management (AUM) has increased by 49 per cent. It has increased from Rs. 60,107 crore to Rs. 89,515 crore at the end of October 2018. Most of this increase is contributed by institutional investors.

According to data published by the Association of Mutual Funds In India (AMFI), institutional investors accounted for 89 per cent of ETF AUMs at the end of October 2017. It has increased to 93 per cent in the latest figure.

 One of the reasons for such low participation by the retail investors in ETF is because it is not pushed by many advisors or MF distributors because of either very less commission or no commission. Moreover, active funds in India are still beating the passively managed funds. Nevertheless, going ahead, we believe as the awareness about the ETFs catches up, we will see growth in the AUM of ETF led by retail investors.