India’s steep rise in exchange-traded fund (ETFs) investments is being driven by institutional investors, according to the Association of Mutual Funds in India (AMFI).
As of October 2018, AMFI found that institutional investors accounted for 93% of ETF assets under management (AUM), compared to just 7% for retail investors.
The data also showed the gap is widening, with retail investors weighing in at 11% of ETF AUM during the same period in 2017.
According to the report, the reason for such low retail participation in passive investments is that ETFs are not high on many advisers or distributors’ lists because they carry very low or no commission.
While active funds are more popular than passively managed ones in India, there is confidence within the industry that ETF awareness is catching up with investors, with the AMFI report predicting a future growth in the AUM of ETFs led by retail investors.
Booming passive investment
ETFs have become the backbone of global passive investment since their inception in the 1990s and India is following suit.
Passive investment in India has been booming since 2013. As at the end of the financial year 2017-18, passive investment in the country stood at INR74.06bn (£818.1m $1,05bn, €924.6m), compared to INR24.31bn at the end of 2012-13.
ETF AUM in India has followed a similar path, increasing by 118% annually since the start of the financial year 2014.