The volume of exchange traded funds and index funds jumped by a considerable 43 per cent year-on-year to ₹5.21-lakh crore as of June 2022 from ₹3.65-lakh crore in the same quarter of the previous fiscal. And it further spiked to ₹5.72-lakh crore as of July 2022, reported Business Line.
Experts attribute the strong growth to the growing awareness about the passive investment products, historical underperformance of active funds, investors looking for diversification; and availability of a wider range of investment themes under passive investment products now.
A passive investment strategy does not require active fund management as these funds simply track an underlying benchmark. With the reduction is information asymmetry globally, active funds have been struggling to beat their benchmarks, strengthening the case for passive funds. These include index funds, gold ETFs, other ETFs and international ETFs.
“Biggest reason for growth of ETF and index fund assets is awareness. Due to the exponential rise of retail demat accounts in the pandemic, ETF demand has also grown in the same proportion,” said Pratik Oswal, Head of Passive funds, Motilal Oswal Asset Management Company Ltd.
Index funds saw an increase in net assets y-o-y to ₹83,408 crore as of June 2022 from ₹24,947 crore during the same quarter previous fiscal. It was followed by ‘other ETFs’ whose assets grew to ₹4.36-lakh crore as of July 2022 from ₹3.06-lakh crore in June 2021. Assets of gold ETFs and international ETFs grew by 25 per cent and 8 per cent, respectively, during this period.
“Rising interest in passive investing is aiding the growth of ETFs in general. The highlight, however, is the rise in Debt ETFs in recent times. Target Maturity Debt Funds, as a category, has grown the fastest in the last one year and have significant contribution to the growth of ETFs,” said Radhika Gupta, MD & CEO, Edelweiss AMC
Spike in retail participation
The number of folios (mutual fund accounts) also recorded a significant jump implying higher retail participation. For instance the number of folios under Other ETFs nearly doubled from 53.81 lakh in June 2021 to 1.15 crore folios as of July 2022.
Among the four schemes, Other ETFs received the highest net inflow of ₹93,010 crore between July 2021 and 2022 followed by Index Funds ( ₹55,701 crore), International ETFs ( ₹8,179 crore) and Gold ETFs ( ₹3,011 crore).