DSP Mutual Fund's Anil Ghelani Highlights Benefits of CAS for ETFs and Index Funds

New Delhi, India Aug 27, 2026 ALN: The Closing Auction Session (CAS) is set to significantly benefit Exchange-Traded Funds (ETFs) and index funds, according to Anil Ghelani, Head of Passive Investments & Products at DSP Mutual Fund. In an email interview, Ghelani emphasized the structural shift that CAS represents for the Indian market.

Impact of CAS on ETFs and Index Funds

With the CAS now operational, India aligns more closely with major global markets. Ghelani noted that while the transition may introduce some initial volatility, the long-term outlook is positive. He stated, "The participation in the CAS will gradually increase, and it will prove beneficial not only for ETFs and index funds but also for various other market participants." This structural change aims to improve the efficiency of price discovery in the Indian equity market by allowing a dedicated time frame at the end of the trading session for all orders to be matched. This is a common practice in many developed markets, which can lead to more stable pricing and reduced discrepancies between the market price and the underlying index value.

Driving Demand for Passive Investments

Ghelani highlighted that the demand for index funds and ETFs in India is fueled by several factors. Unlike many global markets where performance drives the shift towards passive investing, Indian investors are increasingly attracted to the simplicity, transparency, and cost-effectiveness of passive funds. He pointed out that the growing Systematic Investment Plan (SIP) culture and rising participation from institutional and retirement funds are also contributing to this trend. SIPs allow investors to contribute a fixed amount regularly, which not only encourages disciplined investing but also helps in averaging out the cost of investments over time. This approach has been particularly appealing to new investors who may be apprehensive about market volatility.

Passive Investing vs. Active Management

When asked about the current market scenario, Ghelani advised that investors should not view passive investing as a tool for market timing. Instead, he emphasized the importance of asset allocation aligned with individual goals. "Passive investing allows investors to stay invested through market cycles rather than trying to predict the right entry points," he explained. This perspective is crucial in a market where emotional decision-making can lead to poor investment outcomes. By focusing on a long-term strategy, investors can mitigate the risks associated with short-term market fluctuations.

Core Portfolio Strategies

Ghelani suggested that passive funds can serve as the core of an investment portfolio, providing broad, low-cost exposure, while active funds can be selectively used in areas where there is a higher potential for outperformance, such as small and micro-cap segments. This hybrid approach allows investors to benefit from the stability of passive funds while still taking advantage of the potential alpha generation that active management can offer in specific sectors or market conditions.

Emerging Trends in Passive Investing

He also noted that beyond large-cap indices and commodities, factor and smart beta strategies are gaining traction, with their market size expanding from ₹5,000 crore to over ₹50,000 crore in just a few years. Strategies based on quality, momentum, value, and low volatility are particularly popular among investors. This shift indicates a growing sophistication among Indian investors who are looking for more nuanced investment strategies that can potentially enhance returns while managing risk. The rise of these strategies reflects a broader global trend where investors are increasingly seeking ways to optimize their portfolios beyond traditional market-cap-weighted indexing.

Cost and Tracking Error Considerations

Ghelani stressed the importance of evaluating both costs and tracking errors when selecting an ETF or index fund. While lower costs are a key advantage of passive funds, he cautioned that they should not be considered in isolation. A fund with a slightly lower expense ratio but a higher tracking error may ultimately provide a poorer experience for investors. Tracking error, which measures how closely a fund's performance matches that of its benchmark index, is a critical metric for passive investors. A low tracking error indicates that the fund is effectively mirroring the performance of its index, which is essential for achieving the intended investment outcomes.

In conclusion, the CAS is expected to enhance the landscape for passive investments in India, with Ghelani optimistic about the future growth of ETFs and index funds in the mutual fund industry. As more investors become aware of the benefits of passive investing, coupled with structural improvements in market mechanisms like CAS, the mutual fund industry is likely to see a continued shift towards these investment vehicles. This evolution not only reflects changing investor preferences but also signifies a maturation of the Indian financial markets, positioning them more competitively on the global stage.