Morgan Stanley estimates ETF assets will go up 12 times in 10 years

Illustration: Binay Sinha
The Indian markets could witness a boom in exchange-traded funds (ETFs) in the coming decade, says Morgan Stanley. The US-based brokerage estimates the ETF assets to jump 12 times from the current level to $200 billion by 2029.

Globally, ETF assets have risen nearly 21 times in the last 15 years from $240 billion to $5 trillion currently. In India, ETF assets have risen from $240 million to $15 billion in four years. ETFs now account for a sizeable 15 per cent of the total equity assets under management (AUM). ETF AUM as a percentage of the total equity AUM was less than a per cent four years ago.

Morgan Stanley says retirement funds (EPFO and NPS) will be a big driver for ETF assets over the next 10 years. Moreover, recent underperformance of actively managed equity schemes and low-cost of investing could also push investors to look at ETFs more aggressively, say industry players.

Historically, in India, actively-managed schemes have been able to beat their respective benchmarks. However, the trend seems to be reversing in the past one year. A study by S&P Dow Jones Indices showed that 92 per cent of large-cap equity funds and 26 per cent of mid- and small-cap equity funds had underperformed their respective benchmarks in 2018.