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India sees increasing activity in passives, says Cerulli

ETFsIndia’s mutual funds industry is seeing a significant uptick in activity in its passive segment with the launch of exchange-traded funds (ETFs) and index funds. According to research by Boston-based consultancy, Cerulli Associates, while actively managed equity funds continue to attract flows, the three-year compound annual growth rate (CAGR) for ETFs in India was 74.8% in contrast to 15.3% for mutual funds, as of December 2019. Since 2018, there has been a 59.8% year-on-year increase in new net flows into ETFs and Cerulli notes that the regulator and government have driven growth. “Regulatory measures such as the categorisation of mutual fund products, focus on digital channels, and adoption of a trailer-fee based model have provided the impetus for the leap toward passives,” the consultancy said in a statement. India’s ETF market currently totals 85 – up from 61 in 2018 and 36 in 2015, although a majority focus on large-caps and are linked to equity indexes. “Domestic investors could seek low-cost strategies as local players struggle to generate alpha in active funds, and asset managers will have to be prepared to cater to their needs. This can be further reinforced with investor education to raise awareness of these products as well as their benefits,” said Phoebe Yeo, an associate analyst at Cerulli. “However, scale is important in passive business. Despite boosting growth in assets under management, low-cost products will dent investment management fees and weigh on profitability,” she added. © 2020 funds global asia

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