There’s a consensus building among mutual fund industry players —“Exchange Traded Funds (ETFs) will drive the industry growth in future.”

One of the latest reports released by PwC (PricewaterhouseCoopers) estimates that the global ETF industry will touch US$ 7 trillion mark by 2021. Robo-advisors and SEBI Registered Investment Advisors (RIAs) are likely to drive the ETF AUM (Assets Under Management).

At a recent BSE-organised 3rd annual thought-leadership summit — ‘A mammoth on the move’, industry veterans agreed with  the PWC report.  They opined that the same factors expected to drive the global ETF industry will contribute to the growth of the Indian ETF industry in the coming years as well.

According to Mr Yogesh Bhatt, a fund manager at ICICI Prudential Mutual Fund “Currently, the money in the ETF market is coming through institutional investors only. The retail participation is minuscule. However, with the advent of robo advisors, we believe this is set to change.”

Mr Vishal Jain, Head of ETF, Reliance Nippon Mutual Fund shared similar beliefs, “Since RIAs do not work on commission model, there is no incentive to sell active funds. In fact, fee based advisors draft investment portfolio of their clients purely with the set of ETFs. This will happen in India too with the growth in the number of RIAs.”

Echoing their views, Mr Navneet Munot, CIO of SBI MF said, "Globally, institutional investors adopted ETFs and then retail investors followed them. I believe this will happen in in India too. In fact, we have been witnessing retail participation in equity markets through ETFs. ETFs will get more popularity once other pension funds start investing in equity through ETF route.”

PersonalFN is of the view that, you shouldn’t invest in ETFs blindly. If you are new to investing, ETFs might be a good starting point for you. These can help you capture the performance of an index or the asset class as a whole. However, while investing in equity-oriented ETFs, stick only to those mirroring the performance of broader equity indices. Moreover, Gold ETFs remain one of the best options to investing in gold.

A word of caution, investing in sector oriented ETFs is as bad an idea as investing in sector funds. They carry a high level of risk with them. Unlike in the case of actively managed schemes, the size of an ETF matters more due to liquidity associated with it. Thus, when investing in ETFs, assess the AUM is adequately high.

PersonalFN believes, actively managed mutual fund schemes are more attractive than ETFs, provided you invest in right equity schemes. Rule of thumb, focus on long-term wealth creation before you select a fund. Remember, your investments should be aligned with your risk appetite and financial goals. You should ideally invest in schemes with a proven track-record across timeframes and market cycles.

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