Warren Buffet repeatedly says index funds make the best investment sense 'practically all the time'. Why aren't they popular in India?

I just checked the AUM of the top Indian ETFs and those in the US and the numbers are just ridiculous.

When the trend of passive investing is on the rise in developed markets I was wondering why the opposite in India.



SBI ETF Nifty ₹23,214.00
CPSE ETF ₹5,283.00
UTI Nifty ETF ₹3,880.00
Kotak Banking ETF ₹3,827.00
GS Bank BeES ₹2,488.00
UTI Sensex ETF ₹1,222.00
GS Nifty BeES ₹839.00
R*Shares Nifty ETF ₹804.00
SBI ETF Banking ₹640.00
Kotak Nifty ETF ₹518.00
SPDR S&P 500 ETF $239,093,786.06
iShares Core S&P 500 ETF $127,286,111.65
Vanguard Total Stock Market ETF $83,550,438.04
iShares MSCI EAFE ETF $80,148,839.89
Vanguard S&P 500 ETF $73,342,602.92
Vanguard FTSE Emerging Markets ETF $64,148,562.36
Vanguard FTSE Developed Markets ETF $62,104,600.53
PowerShares QQQ $52,031,550.54
iShares Core U.S. Aggregate Bond ETF $50,238,488.59
iShares Russell 2000 ETF $40,029,529.36

@nithin @karthik @vasanthkamath your views?


I think the difference in AUM of Indian and developed market ETF’s is simply because of the difference between the size of market capitalization. I think to get the clearer picture you should calculate it as percentage of total AUM of mutual funds. Developed countries have a very developed capital markets with broad participation.

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To add to this, in India ETF’s have historically underperformed most actively managed funds. The reason maybe because index isn’t designed well or because of information asymmetry (Fund managers having access to more information).

Also other than Nifty and Banknifty, there aren’t too many liquid ETFs to participate in as well. Maybe platform like https://www.smallcase.com/ which is like a quasi ETF play can make investing in ETFs popular in India.


The index EFTs in India are very underdeveloped. You basically get Nifty 50 (which has 51 stocks) as ETF option. Principal PNB had a mid-cap index fund that they closed. There are arround 9500 (of which maybe 500 trade liquidly) listed companies on BSE and NSE combined. That means there is a huge opportunity set that is not covered by the index and hence index funds ETF and morever the median mutual fund in India outperforms its index.

Compared this you get Rusell 2000 ETF in US which replicated 2000 stock index with virtually zero difference. This contrast means its absolutely idiotic to invest in index funds in India as we stand now. The only rational seems to be that you can step in and out of index funds without exit fee after 7 days in most cases. So for short term nifty bets if you dont have F&O you can consider index funds. If you have F&O - the cleanest and cheapest way is to invest via futures.


Quoting from this article.

On an average, the gross returns by active funds exceed returns from Nifty by more than 11%. This outperformance is after accounting for the costs of managing an active fund.

And Samir Arora says,

While on other side of earth Warren Buffet won a bet he placed against Protege Partners almost a decade ago. The bet he placed was this

“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”

Here’s a link.

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The problem is that India does not have the same diverse set of Index funds as the United States does. Most of the Index funds here tend to focus on the BSE Sensex (30 giant companies) or the Nify 50 (giant 50). In the United states you have a lot of Index funds that allow you to buy the SMP 500 or the entire set of listed stocks. We do not have a Vanguard like Fund house in India that is true to Indexing and offers extremely low expense ratios. All this does NOT mean you should put money actively managed funds and stay away from Index funds.

I found that the Nifty Next 50 is an awesome Index to follow with a proven track record. I picked the Nify Next 50 I found a total of 102 equity mutual funds with a return history of over 15 years. Out of all these funds the returns from the Nify Next 50 ranked 7th. i.e it managed to beat 94 out of 102 equity mutual funds. This article http://www.stayinvested.net/2018/03/26/index-funds-in-india/ has a lot more details.


Nice analysis. But are you one of those investors who puts money where your mouth is?

Yes i am :slight_smile: The Nifty Next 50 is one of my main investment avenues.

Main as in along with a Nifty 50 index fund too? Would love you hear your take on ETFs vs Index Funds.

Thats a great analysis but if you have researched of Nifty 50, what was the outcome of that analysis?

  1. Wouldn’t it be better if we go for the blend of both, Nifty 50 and Nifty next 50?

  2. So basically in Mutual fund segment, you just holding Nifty next 50 and you will continue doing Sip for next 15-20 years. Is that correct?

Or better should we go like this,