Leaving aside Gold ETFs which were already popular in early 2010s, equity/debt passive ETFs/index fund folios have risen astronomically from 20 Lakhs in December 2019 to nearly 3.11 crore in December 2024.
The popularity of ETFs (exchange-traded funds) in India continues to gain momentum among retail and institutional investors. Their low-cost structure, diversification benefits, and ease of trading make them attractive, especially as active funds struggle to consistently beat benchmarks. But are investors in India ready for passively managed funds? Here’s what experts say.
What are ETFs?
Before we look into it, let us tell you what exactly ETFs or Exchange Traded Funds (ETFs) are.
ETFs are a collection of assets that trades on a stock exchange. ETFs let investors invest in large number of securities at once. Also, ETFs let investors buy and sell at any time of the day.
According to Dilshad Billimoria – founder & financial Planner, Dilzer Consultants – ETFs are gaining popularity among retail and institutional investors because of their low-cost structure, diversification benefits and ease of trading.
“While passive investing is growing, its effectiveness varies across markets. In developed economies, efficient markets make it hard to generate alpha, favoring passive strategies. However, India’s high-growth market still offers active managers opportunities for outperformance, making a balanced approach ideal. India’s ETF market is expanding beyond index funds, with high-beta, sector-specific, and REIT ETFs gaining traction. Global benchmarks like the Hang Seng Index are also influencing investments,” said Billimoria.
Leaving aside Gold ETFs which were already popular in early 2010s, equity/debt passive ETFs/index fund folios have risen astronomically from 20 Lakhs in December 2019 to nearly 3.11 crore in December 2024.
Karan Aggarwal – co-founder and CIO, Elever – said that the main factor behind the rise of retail interest in ETFs/index funds is alpha-driven factor products.
“In the last 5 years, more than 100 factor products have been introduced in the market, providing exposure to diversified portfolios providing concentrated exposure to winning factors such as value, momentum, quality, alpha, low- volatility and Dividend with a reasonably long track record of outperforming benchmarks in long-term,” Aggarwal said.
However, India is not yet at the stage of a full-fledged passive revolution. Increasing financial awareness, regulatory support, and digital investment platforms will speed up adoption.
“The question isn’t whether ETFs will become mainstream in India, but rather how quickly investors will adapt to this new way of wealth creation,” Billimoria concluded.