Since 2002, when they were introduced, exchange-traded funds (ETFs) have given considerable competition to other Indian mutual fund categories and have become a common feature in the Indian investment scene. In this article, we have covered the trajectory of the growth of ETFs in India, dissected the top five performers by AUM, and mentioned their unique features.

In 2002, with the introduction of the first ETF by Nippon India Mutual Fund (formerly Benchmark Asset Management Company Ltd.), the Indian ETF market began its operation. This pioneering ETF, tracking the Nifty 50 Index, initiated a journey that has been characterised by incremental growth. This occurred after over nineteen years since the 100th ETF was listed on the NSE, showing a measured yet steady expansion of the market.

This increase in growth has gained momentum in recent times. Last year alone, 21 new ETFs were introduced. Besides, as of March-end 2024, AUM for Indian ETFs rose to a whopping ₹6.64 lakh crore from only ₹23,000 crore as of end-April 2016. Such exponential growth indicates increasing investor interest in exchange-traded funds (ETFs).

ETFs are exchange-traded funds, with the name implying that they are investment vehicles like stocks. These usually mirror a specific index and go on to hold a list of securities, among others. On the other hand, ETFs can be purchased and sold at any time during the trading day, which gives investors an advantage as they are more flexible compared to traditional mutual funds. Furthermore, ETFs generally have a lower expense ratio than actively managed funds.

These features make them suitable for different categories of investors: those who take no risks and beginners who want market-related returns while diversifying their risks and spending less in doing so.

Top Performers: A Closer Look

The Indian ETF market has a wide range of options. Here is an insight into what makes the top five ETFs by AUM as of June 14, 2024

Understanding ETFs: Benefits and Features

1. SBI Nifty 50 ETF: SBI Mutual Fund manages this ETF, which follows the NIFTY 50 TRI index. It is differentiated by a low expense ratio of 0.043% and an impressive AUM of ₹1,80,683.09 crore. Over the last three years, up to 2017, it has averaged 13.25% CAGR.
2. SBI S&P BSE Sensex ETF:Another product by SBI Mutual Fund, this ETF tracks the S&P BSE SENSEX TRI benchmark. Launched in September 2013, it carries a low expense ratio of 0.043% and assets worth ₹1,09,812.59 crore. In contrast to its benchmark’s average annual return (CAGR) of 14.79%, the fund outperformed with a CAGR of more than that number for the period since launch.
3. UTI Nifty 50 ETF:UTI Mutual Fund manages this ETF, which replicates the NIFTY 50 TRI benchmark. It was unveiled in February 2015 and boasts an expense ratio of only about five basis points and an asset base of around INR 52bn as of August, with regular sub-schemes on a daily dividend basis available for investment across all retail and institutional investor types without entry or exit loads. The SIPs/repurchase price-based NAV performance over FY15–17 has given compound returns of greater than (>)14%p.a.Unlike its reference index, the fund has achieved a CAGR of 14.5% since inception.
4. CPSE ETF:Managed by Nippon India Mutual Fund, this ETF tracks the NIFTY CPSE Total Return Index. Launched in 2014, it offers a low expense ratio of 0.05% and holds assets worth ₹41,259.61 crore. This ETF has emerged as a high performer, generating a CAGR of 19.07% since inception, surpassing its benchmark's CAGR of 16.83%.
5. UTI BSE Sensex ETF:: Managed by UTI Mutual Fund, this ETF tracks the S&P BSE SENSEX TRI index. Launched in 2015, it boasts a low expense ratio of 0.05% and assets totaling ₹40,012.19 crore. The fund has delivered a CAGR of 14.43% since inception, outperforming its benchmark's CAGR of 11.35%.

Conclusion: ETFs: A Viable Investment Option in India:

The remarkable growth of ETFs in India signifies their increasing acceptance and value proposition. The top performers highlighted above demonstrate the potential for robust returns with efficient costs. As the Indian ETF market continues to evolve, it is likely to attract a wider investor base seeking diversified and cost-effective investments.