Passive Investing Up In India; Total ETF AUM Up Nearly 40%

Over the years, there has been a steady rise in passive investments by Indian investors, shows a recent study by the National Stock Exchange (NSE). Among the different modes of passive investments, investing through exchange-traded funds (ETFs) is the preferred choice for a large section of investors in India. Between March 2021 and December 2021, the total assets under management (AUM) of ETFs rose nearly 40 per cent in India to Rs 4,02,601 crore. The report also finds that with 122 ETFs in December, there has been a rise of more than 18 per cent in the total number of ETFs during this period.      

Rise In Passive Investment    

While total AUM has gone up by nearly eight times since March 2017, the number of ETFs has also doubled in the period. Investment in retail ETFs has witnessed a sharp spike over the years, and between March and December 2021, the total number of ETF folios grew by more than 60 per cent to more than 4.2 million. 

“Globally, there has been a trend of investing more in passive investments. Gradually, investors in India are also taking up the trend as it involves better returns,” says Suresh Sadagopan, founder of Ladder7 Financial Advisories, a financial planning firm.    

There has been a steady rise in the equity markets since April 2020, especially after Covid hit, leading to an increase in passive investment too. “If you invest in a good diversified portfolio in an economy like India, you are bound to make money,” said Amit Trivedi, financial author and blogger, in a recent interaction with Outlook Money.       

Out of a total of 122 ETFs in December 2021, at 95, equity ETFs accounted for more than 75 per cent, and more than 80 per cent of the total AUM. 

 “Equity gives the maximum returns (compared to other asset classes); thus, investors tend to invest more in equity most of the time,” says Sadagopan.  

Although there has been a considerable rise in the investment in debt ETFs, the category continues to attract fewer investors. The number of debt ETFs remains at 11 since 2020.  The reason for this lies in the purpose behind investing in debt. “Debt portfolio is more or less for safety. Equity is mostly for returns and growth,” said Trivedi.   

Investors who want to take advantage of market movements without taking on the fund manager risk that comes with actively-managed funds can look at passive investing in both equity and debt through the ETF route, keeping in mind the need for higher returns with higher risks or lower returns with lower risks, respectively.