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The promise of ETFs in the Indian and US markets

Our prior blogs,on ETFs highlight features such as low cost, effortless diversification, above-average gains and more. The fact that the ETF industry across the globe saw meteoric growth is a validation of these investor-friendly features of ETFs. And all of these features make ETFs superior investment instruments. 

In 2017, a Bloomberg Intelligence report ranked India as the world’s second-fastest-growing exchange-traded funds (ETF) market, behind only Japan, with assets more than doubling to $4 billion from $1.9 billion in the past three years. Further, in Aug 2019, in the USA, the share of assets managed by passive funds increased over the share of assets managed by active funds for the first time.

However, this growth rate has varied from country to country, and ETFs, as a product, is going through a global change in perceptions – from initial skepticism to enthusiastic acceptance by investors in various financial markets around the world. While there are many viewpoints on what makes ETFs superior investments, for this particular blog, we will be focusing on the growth of ETFs in two specific countries to better understand the finer modalities of investing in ETFs. The two countries in question are India and the U.S.

ETFs and the Indian Market

Around 2002, ETFs were launched in India. The first Indian ETF was called Nifty BeEs and was based on the Nifty 50 Index. In the initial years, there was high skepticism concerning ETFs. In those early years, ETFs had evolved as an instrument to invest primarily in gold; given the gold rush due to the 2008 market crash. Later ETFs emerged as a go-to tool for the Indian Government to undertake disinvestment in the Public Sector Units (PSUs). This was followed by the Employees’ Provident Fund Organization (EPFO) which administers a contributory provident fund, pension scheme, and an insurance scheme for the workforce engaged in the organized sector in India, using ETFs as a preferred route for equity exposure in their portfolio. These Indian Government policies have helped ETFs to flourish in India and India is being tagged as one of the emerging markets for ETFs.

However, while considering investing in ETFs, please keep in mind that the Indian market is not as mature as the market of other developed countries. There are less than 100 ETFs listed in India. Nearly 85% of ETFs in India are linked to equity indices and are majorly large capped. This can limit investing options in ETFs to fully achieve your financial goals.

ETFs and the US Market

ETFGI LLP, a research and consultancy firm on global ETF trends, states that the ETF offering in the developed markets such as the U.S. is extremely broad. There are over 1,000 ETFs listed in the U.S. market. In 2008, U.S. investors had around $530 billion in ETFs. In May 2020, this amount has grown to over $4 trillion.  So it can be surmised that ETFs have shown exponential growth in the U.S. market and are good investment opportunities.

Moreover, ETFs in the U.S. market cover the full range of capitalization — they track six large indices, along with 20 alternate indices on small and mid-caps. ETF issuers have been agile and have rapidly responded to the demand for innovative ETFs. Overall, an ETF investor in the US enjoys the depth of a mature market in an inexpensive manner.

To sum up, ETFs play an important role in every investors’ portfolio. Appreciate’s big data capabilities can help you to manage your portfolio and invest in the right ETFs. To learn more about investment, savings, trading, financial planning and to reach your financial goals like a pro,  visit our website and sign up!

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