These index funds are very popular in the developed markets; however, these are yet to capture the imagination of the Indian investors. This is clearly reflected in the latest data of average assets under management (AUMs) under different categories of funds. We see that the large-cap funds still rule the roost and on average have AUMs of 4091 crore. Compare them with the index funds that have average AUMs of 225 crore and ETFs (after removing CPSE and Bharat ETF) having 1028 crore.
Nevertheless, passive funds (index and ETFs) are growing their stature in the Indian equity market, which is increasingly reflected in their gaining of market share. From the low of 3 percent at the start of the year 2015, the market share of ETFs and index funds has grown to 17% of the total equity mutual funds at the start of January 2019.
There are different reasons why index funds are gaining traction. Besides the larger interest by the institutional investors such as the EPFO, one of the basic reasons passive investments are gaining ground is their low cost. If we check the expense ratio of open-ended equity funds at the end of July 2019, index funds are far cheaper than actively managed funds.
The table clearly shows that the index funds and ETFs are cheaper and cost one-third of the cost of other actively managed regular funds. Although the difference looks quite low (around 1.5%), in the long run, it has a huge impact on returns. For example, this meagre difference will compound to about 6% in 3 years, 13.5% in 5 years and a huge 56% over 10 years.
Bu hikaye Dalal Street Investment Journal dergisinin September 02, 2019 sayısından alınmıştır.
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Bu hikaye Dalal Street Investment Journal dergisinin September 02, 2019 sayısından alınmıştır.
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