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ETFs outshine large cap Mutual Funds in 2018

Research Digest | December 21, 2018
Key Highlights

The Actively managed large cap funds have been not able to outperform the index returns in 2018.Whereas Exchange Traded Funds have performed better than the

Whereas Exchange Traded Funds have performed better than the large cap funds and hence have been providing superior return to the investors.

When compared the average returns given by ETF`s during the last 3 month, 6month, 1 year and 3 year period all have been higher than the returns generated by large cap funds during the same tenure.

Additionally the expense ratio related to the actively managed large cap funds has been much higher than the ETF`s which does not allow them to generate alpha. The average expense ratio of an ETF lies between 0.5% to 1% while the average expense ratio of a large cap fund hovers around 2%.

Another constraint faced by the actively managed large cap funds is that with the SEBI norms coming in, they are required to put 80% of the corpus in only 100 stocks categorized as large cap while only 20% remains to be invested somewhere else which has also hurt the return generation.

The better returns given by the ETF`s over actively managed funds have been captured by the market and the AUM growth of 2018 has inclined more towards the ETF`s than large cap funds.

ETF funds have increased in quantity too, In Jan 2015 ETF`s comprised of just 1.2% of the total mutual funds AUM while today it stands at 3.94%.

The ETF`s growth has also been particular to the index ETF`s. Gold ETF`s on the other hand have seen degrowth in the total AUM in this calendar year.

Exhibit: AUM Growth of Mutual funds 21-Dec-18



Exhibit: ETF as a % of total Mutual funds AUM









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