It could be said that the ETF business has been a 20 year “overnight” success. Since the introduction of the first ETF back in 1993, we have seen a global expansion across multiple Exchanges and a diverse product offering. As at the end of July 2013, there were 3,441 ETFs, with 7,792 listings, assets of over US$2bn from 185 Providers on 55 Exchanges (Source:ETFGI). S&P Dow Jones Indices has been at the forefront of this phenomena licensing the underlying index for the very first ETF SPDR® S&P 500® ETF (SPY). Currently there are approximately US$595bn in ETFs linked to S&P Dow Jones Indices (Source:ETFGI).
Whilst the first ETF launched in India back in 2002, the Indian ETF market can still be considered nascent considering its relative position compared to the domestic Indian Mutual Fund Market. Currently there are 37 ETFs with approximately US$1.7bn in assets, which accounts for only 2% of the assets Indian Mutual Funds (Source:ETFGI). However, the number of ETFs has more than doubled in the last five years and there are now 15 Issuers in the market, providing access across the country’s two major Exchanges.
In addition, recent initiatives such as the ban of payment of distribution fees to financial advisers, greater requirement on transparency of fees and the lowering of the securities transaction tax fees on ETFs have levelled the playing field for usage of ETFs by retail investors. Institutional investors, such as Insurance Companies, are also seeing changes whereby regulation will allow increased investment allocations through ETFs. The recent announcement of the Government-led project to launch an ETF based on Public Sector Companies, the CPSE ETF, is further evidence of utilisation of the ETF structure. Looks like this could be the road ahead for index investing in India.