The Surge of Passive Investing in India

The Assets Under Management (AUM) of Exchange-Traded Funds (ETFs) in India have surged impressively, from US$ 42.2 million (Rs. 351 crore) in 2014 to US$ 75.42 billion (Rs. 6,27,244 crore) presently, indicating a growing interest in passive investing. By mirroring specific market indexes or sectors, ETFs provide a cost-effective means for investors to engage in equity markets by tracking market trends rather than involving active management. Key metrics like the expense ratio and tracking error play a pivotal role in the attractiveness of passive funds. A lower expense ratio reduces costs for investors, while minimal tracking error ensures close alignment with benchmark indexes, bolstering net returns and market performance.

Despite the availability of low-cost ETF options from providers such as Kotak, ICICI, and Mirae, many investors overlook the significance of costs when selecting ETFs or index funds, contradicting the cost-efficiency principle of passive investing. In India, the allure of passive investment strategies has grown due to their cost-effectiveness and simplicity. However, to fully leverage the advantages of these cost-effective options, investors must prioritize low-expense ratios, highlighting the importance of careful selection for optimal integration of passive funds within investment portfolios.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.