Pays To Be Passive

ETFs are finding favour among both fund houses and investors. Koel Ghosh, Head of Business Development, South Asia, S&P Dow Jones Indices tells Outlook Money the development in the index and benchmark space.

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1. Tell us why you need an index and where do passive ETFs fit in?

The need for index is based on rules that define them. So, factors like liquidity, type of constituents of the index and any other such factor go into building one. Once the index is created, it becomes easy for investment portfolios to be benchmarked to peg the performance of a fund. We provide indices recognising the need for choices and are creating innovative and varied options to suit the market. As far as ETFs are concerned, these are funds based on an index composition that we develop and are passive investment options for investors. 

I am witnessing a growing trend of passive investing in India. Although the market still offer alpha to active fund managers, some market participants are moving toward index-based investing. ETFs are an innovation that potentially lower costs as a result of fewer intermediaries, reduced administration expenses, lower marketing costs due to the availability of online platforms, and a move toward increased automation. The CPSE ETF has helped in creating a wider investor acceptance to the ETF.

2. Is there any role for ETFs in India?