Performance of Exchange-Traded Funds in India

Krishna Prasanna


The concept of Exchange-Traded Funds (ETFs) is very popular in foreign countries, but in India, it is still in the
initial growth phase. This research paper examines the characteristics and growth pattern of all the 82 exchange
traded schemes floated and traded on Indian Stock markets, and evaluates their performance using Data
Envelopment Analysis (DEA). On an average, ETFs grew at 37% annually during the period 2006 -2011in India.
These funds consistently outperformed the market index and generated higher returns. ETFs generated excess
returns of 3% p.a. as against CNX NIFTY, which is the Indian equity market bench mark. Gold ETFs provided
13% excess returns as compared to the returns on the equity market and attracted large investments in the post
financial crisis years. Data Envelopment Analysis ranked domestic and overseas fund of funds as efficient funds,
which were floated by foreign Asset Management Companies (AMCs) and the AMCs with Joint Ventures in
India. Among the foreign AMCs, Franklin Templeton was found to offer the most efficient fund. These efficient
funds are found to have higher Sharpe ratios, indicating that the DEA ranking is in broad consensus with the
evaluation done using Sharpe ratios. However large funds were not found to be efficient funds. This infers that the
fund size does not indicate superior performance.

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