The Innovative Financial Product
Some of the innovations, including the financial ones, are accidental. The ideation and introduction of the Exchange Traded Fund (ETF) is one of them. The origin of ETFs can be traced back to the 840-page report by the US market regulator Securities and Exchange Commission (SEC). The report titled “The October 1987 Market Break’ was an investigation report on Dow Jones Industrial Average (DJIA) steepest fall of 508 points or 22 per cent in a single day on October 19, 1987. This report diagnosed the reason for the fall as ‘portfolio insurance’ and accidentally suggested the product idea of the ETF. The rest is history. In a short span of 25 years (at least in the financial world), the growth in size of ETFs defy all the superlatives. According to a report by E&Y, Global ETF assets, which totalled just USD 417 billion in 2005, had reached USD 4.4 trillion by the end of September 2017 — a cumulative average growth rate (CAGR) of around 21 per cent. India has not remained aloof to this trend and the growth of the ETFs has been phenomenal and has surpassed the growth of the mutual funds in India.
In India, there are 57 ETFs, other than gold ETFs, having AUMs of ₹81,272 crore at the end of May 2018. These ETFs account for 4 per cent of the total mutual fund AUMs in India and 11 per cent of equity MFs (including ELSS) at the end of May 2018. Five years back, there were only 23 ETFs in India with total AUMs of ₹1581 crore and these accounted for less than 0.5 per cent of total AUMs of Indian mutual fund industry.
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