ETF to become the go-to investment product in 5 years, says Swarup Mohanty2 min read . Updated: 26 Jun 2020, 12:42 PM IST
Episode 3 of ‘Winning Over Volatility’ shed light on ETFs and their rising popularity, how they compare to mutual funds, and whether now is the right time to invest in ETFs.
The market for exchange-traded funds or ETFs has grown tremendously over the last few years. Today, ETFs are primarily used by the government to disinvest its holdings in CPSE companies, and also by provident funds to acquire equity exposure.
So, what exactly are ETFs, and what is the reason for their growing popularity?
“ETF is a type of investment that aims to provide returns similar to the underlying index—it invests in the constituents of the index. That is why it’s so simple and powerful. There is no active management involved," said Swarup Mohanty, CEO, Mirae Asset Investment Managers (India) Pvt.Ltd.
Mohanty was speaking in Episode 3 of ‘Winning Over Volatility’—a series where experts discuss about the best possible investment practices in the backdrop of the economic crisis. It’s being organized by Livemint, in association with Mirae Asset Investment Managers (India) Pvt.Ltd.
“ETFs can be based on simple indices like NIFTY 50, NIFTY Bank, or just gold, which many Indians are in favour of buying. In a nutshell, ETFs can provide you focused exposure to various market avenues at a very low cost," Mohanty further said.
According to him, ETFs are slowly and steadily finding takers even in the retail investor segment. ETFs are also great investment vehicles for young investors with small amounts of capital. More and more millennial and tech-savvy investors have started opting for ETFs, he added.
And, although, the Indian ETF industry is far behind that of the global market for ETFs, the latter will be the “go-to product in the next five-six years. They will be a significant part of everyone’s portfolio".
Mohanty also highlighted how mutual funds and ETFs compare to each other. “While both are pooled investment products, mutual funds require active management vis-à-vis ETFs, which are about buying into the market as the underlying investment vehicle. Mutual funds aim to outperform the benchmark, and the returns are dependent on the investments made by the fund managers. ETFs simply try to provide returns of the underlying benchmark—they neither aim to outperform or underperform the market index."
He concluded the session by stating that despite the market upheaval, investing in ETFs now is safe.
“I have this simple investment theory—whenever in doubt, buy an ETF. If one is unsure of which segment of mutual fund to invest in, he/she could start with NIFTY 50 and get the market possible returns," said Mohanty.
Watch the full interview here.