A number of investors are warming up to a distinct category of mutual funds: the exchange-traded funds (ETFs). After the Government of India’s successful divestment of select Maharatna and Navratna public sector units (PSUs) through India’s first Central Public Sector Enterprises (CPSE) ETF in March 2014, and the increase in investment of retirement funds in equity through ETFs, these funds have emerged as a fast-growing category. The CPSE ETF was based on an index of 10 Maharatna and Navratna PSUs. It was launched in March 2014 at a net asset value (NAV) of Rs17.45 per unit, and was over-subscribed. After the initial success, the government offered two further tranches in the first quarter of this calendar year. Both were heavily over-subscribed. All categories of investors—anchor, retail, and institutional—participated. For investors in ETFs, the past has proven rewarding. This is among the reasons why in the past 3 years, the assets under management (AUM) of ETFs in India have grown almost four-fold, from Rs13,528 crore in March 2014 to Rs53,533 crore as of June 2017. Across the world, too, ETFs are one of the largest categories. In the US, from a $218 billion AUM in 2003, they have grown manifold to the current $3.9 trillion, a near 25% compounded annual growth rate over 14 years.
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