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The ETF boom continues

The ETF boom continues
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AUM of ETFs jump more than 30-fold in past 5Y

An ETF is a tradable instrument that tracks an index like Nifty/Sensex, a commodity like gold, bonds, or a basket of assets. ETFs are very similar to mutual funds, the main difference being the former is listed on exchanges & trade just like stocks.

It would be expensive for an investor to buy all the stocks of an index or impossible for him to buy a certain quantity of a commodity for a low amount, say ₹1,000. An ETF solves this problem by giving the investor access to many stocks across various industries or allows the investor to invest in a small quantity of the commodity at a reasonable price.

ETFs usually tend to have low expense ratios since they track an underlying index or commodity.

According to news reports, since March 2013, assets under management (AUM) of ETF schemes in India have jumped up from ₹1,476 crore to ₹1,47,187 crore. While ETFs are still a small fraction of the total AUM, market players say the share of passive investment vehicles will only grow in the years ahead.

94% of the AUM is invested in equity schemes, the rest is invested in debt & gold schemes. Experts say investors may increasingly prefer ETFs over actively managed large-cap schemes as the return scorecard in recent years has been in favour of the former.

The ICICI Prudential ETF smallcases basket consists of long-term ETF portfolios, created by ICICI Prudential AMC. 

  • The ICICI Prudential Diversified smallcase provides exposure to large-cap stocks, mid-cap stocks and gold. It also includes factor-based and Government disinvestment themed ETFs. The smallcase is designed for long-term wealth creation.
  • The ICICI Prudential Leaders smallcase is a basket with 4 large-cap focused ETFs. Large-cap stocks add stability to investors portfolio by minimizing volatility.
  • The ICICI Prudential Smart smallcase consists of smart beta ETFs. Smart beta ETFs capture factors like size, value, volatility, etc. delivering them in a cost and tax-efficient structure. This smallcase comprises two ETFs which consider the Value and Volatility factors.

Adding stability with large-caps

Large-cap stocks usually are well-established companies that have long operating histories. These companies tend to have good reputation and are in a relatively better shape to deal with economic volatilities compared to their smaller counterparts. Holding stocks of such companies adds stability to the portfolio.

Another advantage of large-cap stocks is the possibility of steady dividend payments, which aids shareholder wealth creation.

The Top 100 Stocks smallcase uses a proprietary algorithm to generate a weighing scheme that minimizes risk and provides exposure to both Nifty ETF and Junior Bees.

Markets update

In the absence of any positive news, benchmark indices closed the final trading week of the calendar year 2019 in the red. Nifty closed down 0.21% at 12,245.8 whereas Sensex closed down 0.26% at 41,575.1.

While benchmark indices Nifty & Sensex have gained 11.6% and 14.1% since the end of 2018, the rally in the market has been confined to select large-cap stocks & broader markets have not witnessed the same optimism. Nifty Midcap 100 is down 4.9% during the same period & Nifty Smallcap 100 is down 10.7%.

Foreign Institutional investors have invested more than ₹1 lakh crore so far this calendar year. This is the highest amount invested by these entities in Indian equity markets since the calendar year 2013.

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The ETF boom continues
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