The financial year went by i.e 2016-17 was a spectacular year for Indian Passive Fund i.e. Exchange Traded Funds (ETFs) and Index Funds in India. Globally in developed market passive funds are preferred over actively managed funds for long time. Similar trend is starting in India as well.
At the end of March 2017, Passive Funds contribute only 3% of overall mutual fund industry which was about 2% at the end of March 2016. However, overall AUM numbers are very encouraging.
Passive Assets grown by almost 116% from April 2016 to March 2017. At the start of 2016 ETFs and Index Funds put together had around Rs. 24,500 crores of assets under management (AUM) which is grown to around Rs. 52,700 crores at the end of March 2017.
The growth has mainly come from Nifty 50, S&P BSE Sensex, Nifty Bank and CPSE based funds. Majority of this money come from institutions such as EPFO and other PF Trusts.
Nifty 50 and S&P BSE Sensex based ETFs and Index Funds
This category added around Rs. 19,350 Crores of AUM in FY1617. SBI AMC added around Rs. 14,350 Crores, followed by UTI AMC and ICICI Pru AMC.
Considering average return of around 18% to 20% of these funds, we can fairly estimate net addition of Rs. 15,100 crores of AUM in this category.
Central Public Sector Enterprises i.e. CPSE ETF was initially launched in 2014 by Goldman Sachs AMC, which was taken over by Reliance AMC. CPSE ETF is used for the disinvestment of government holding in public sector compaines.
In FY1617. CPSE ETF added Rs. around Rs. 5,000 Crores in FY1617 by way of three Follow-on Fund Offers (FFO).
This year, i.e. FY1718, it is expected that there will be additional rounds of FFO in Reliance CPSE ETF.
In addition to this, ICICI Pru AMC is expected to launch new CPSE ETF by June 2017.
Banking ETFs also added considerable AUM. At the start of April 2016 Banking ETFs had Rs. 2,000 Crores of AUM which increased to Rs. 5,100 Crores. Banking ETFs gave around 33% of return for the period ended March 2017. Thus, on net basis Rs. 2,500 was added in this category of ETFs, out of which around 71% i.e. Rs. 1800 was added by Kotak AMC’s Bank ETF.
At one time, Gold ETFs were very popular. However, in FY1617 investors liquidated around Rs. 900 of thier investments. Subdude returns and availability of other options of investment in Gold are main reasons for investors to diverse from Gold ETFs.
As Indian market is moving towards more maturity and efficiency and reduction in overall alpha generated by active funds will further fuel the growth of ETFs and Index Funds in India.