Exchange-traded funds or ETFs now constitute close to 13% or ₹6.95 lakh crore of the total mutual fund industry's assets under management (AUM) worth ₹53.40 lakh crore, indicating a shift towards ETFs as a preferred mode of investment, a study by Zerodha Fund House shows.

The data shows that there has also been a significant rise in accounts across equity and debt EFTs from 5.33 lakh in 2017 to 1.25 crore in 2023, reflecting a broader acceptance and understanding of ETFs among retail investors. The increase in ETF accounts, particularly among retail investors, can be attributed to the democratisation of investment opportunities and benefits ETFs offer, such as lower costs, diversification, and ease of trading.

In terms of volume, ETFs have grown from ₹26,139 crore in FY2016-17 to ₹1,83,676 crore in FY2023-24, up over 600%, the data shows. "This increase...reflects growing investor confidence and the maturation of the ETF market in India. In the last year, the trading volume of ETFs has seen a significant growth of around 64,000 crore."

"The ETFs on the top three broad indices i.e., Nifty 50 ETF, Nifty Next 50 ETF and Nifty Midcap 150 ETF alone contribute more than 99% of total AUM among broad indices in the Equity ETF schemes," the study shows.

Besides, Nifty 50 ETFs have emerged as the leading contributor among the broad-based indices, with 95% of the total AUM in equity ETF schemes, as of March 31, 2024. Nifty 50 ETFs have ₹2,77,471 crore in AUM, followed by ₹9,628 crore in Nifty Next 50 and ₹2,284 crore in Nifty Midcap 150.

The study reveals that the distribution of AUM across various indices has also shown a diversification trend among equity ETF investors.

“The ETF market in India is poised for continued growth. As more investors recognise the advantages of ETFs, the segment is likely to see increased inflows and diversification. The trend in passive investing is expected to persist, driven by retail investors in the coming years, as passive products are easy to understand, transparent & affordable," says Vishal Jain, CEO of Zerodha Fund House.

Equity, Debt & gold ETFs

Overall, equity ETF schemes consist of 8 broad-based indices and 40 schemes as of date. The includes 18 schemes under Nifty 50 ETF, 7 in Nifty Next 50 ETF, 5 in Nifty Midcap 150 ETF, 4 in Nifty 100 ETF, 2 each in Nifty Midcap 100 ETF & Nifty Smallcap 250 ETF, and 1 each in Nifty MidCap 50 ETF and Nifty 500 ETF.

The AUM for equity ETFs has surged from ₹43,234 crore in March 2017 to ₹5,63,176 crore in March 2024. The category has shown the most substantial growth, highlighting a strong investor preference for equity-based ETFs. Debt ETFs have grown from ₹1,497 crore in March 2017 to ₹96,163 crore in March 2024. "The growth in Debt ETFs has accelerated particularly from March 2019 onwards, indicating an increasing shift towards fixed-income securities in recent years."

Gold ETFs have grown steadily, from ₹5,480 crore in March 2017 to ₹31,224 crore in March 2024. Between 2017 and 2024, AUM in Gold ETFs increased by 470%, which is less pronounced compared to growth in equity (1,200%) and debt (6,300%) ETFs.

Notably, Zerodha Fund House’s schemes – Zerodha Nifty 100 ETF and Zerodha Nifty Midcap 150 ETF, open-ended, passive, equity ETFs - were listed on the exchanges as of 19 June 2024.

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