The assets under management of Exchange Traded Funds based on Nifty index crossed the ₹1-lakh-crore mark as the returns generated by most actively managed equity mutual funds have either turned negative or stagnated in recent times.

The AUM of 17 ETFs tracking Nifty index touched ₹101,633 crore as of August.

Nitin Kabadi, Head - ETF Business, ICICI Prudential AMC, said investors are beginning to appreciate the potential of ETFs and raising allocation to passively managed products given their cost efficiencies and more transparent pricing. “The ETF category has grown 50 per cent year-on-year. We are also seeing noticeable interest in ICICI Prudential Midcap 150 ETF given the recent changes in the multi-cap category,” he added.

Overall flows

The overall flows into ETFs has increased manifold in the last five years, from just ₹7,000 crore in 2015, mainly as the government and the Employees Provident Fund Organisation prefer ETFs to divest and park money.

ETFs combine the trading flexibility of a stock with the diversification and low cost of a mutual fund. Overall, there over 90 ETFs just on the mutual fund platform.

Global scene

Globally equity and debt ETFs have registered a growth of 18 per cent to $7 trillion in the last one year. ETFs charge a lower fee of 0.85 per cent compared to about 2 per cent expense ratio levied by actively managed equity funds.

With almost 40 per cent of the entire ₹7-8-lakh crore of actively managed equity funds invested in top 6-8 companies in terms of market cap, investors are switching to low-cost passive funds, said an analyst. In fact, the lower fee and the stable returns have enabled ETFs to deliver better alpha (a gauge of the performance of an investment against an index or a benchmark considered to represent the market's movement as a whole) than actively managed funds, he added.

Mukesh Agarwal, CEO, NSE Indices, said investors are more comfortable with the transparency provided by ETFs as the weightage of each stock in the index is well defined and fund managers cannot use their discretion to make investment decisions.