Not yet.
One of the my favorite writers in the finance world is Cullen Roche of Pragmatic Capitalism. He wrote an interesting article on why Mutual funds will die/are dying which you can read. It is an interesting take that many have echoed over the years. MFs are illiquid, underperforming etc. etc. ETFs are the hot thing and the case it strong. You can easily flip ETFs away, they are easy to track, cheaper etc.
While I agree with what the sentiment regarding MFs is, I disagree with the notion that MFs are dying/will die. At their core, ETFs are still similar to MFs. You are still entrusting your funds to a fund manager. Let's look at some data from googling:
"Systematic Investment Plans (SIPs), popular among retail investors for allowing investment of a fixed amount regularly in schemes, also rose to a record 96.09 billion rupees in July from 91.55 billion rupees in June." (Reuters)
The story is different in the US:
Source: YCharts
While I could not find similar ETF data for India, it is obvious that ETFs are growing in popularity (anecdotally) but they are still small compared to MFs. This space has huge potential. But MFs are super rooted in people's minds. Years and years of marketing has made them a mainstay in the financial world and retail investors trust them to manage their money. For the average Joe, it is all the same. If anything, MFs will seem more liquid (in many cases, they are). ETFs also tend to be mostly passive and you won't see insane returns most of the time (Cathie Wood is an exception). Passive is not a free lunch. Just because passive funds have a record of outperformance, it doesn't meant they will continue to outperform. Passive investors buy at every level, thus further distorting prices. Another point that works in favor of MFs is that they keep people invested. Even if they underperform and charge large commissions, it is still better to get that underperformance than have no performance at all and have all the cash in a bank. With ETFs, I am not sure if people will have that same habit of staying invested longer term as you trade them just like stocks. Not everything is black and white.
The point I am trying to make is that there will come a day where ETFs will eventually take over MFs in market share, but that day is far far away and will come after multiple decades. There is a lot of financial education still required, a lot of inflows into funds, and the ETF space is just not that developed. Most of the ETFs are still passive, there will always be a guy trying to beat the market, and always a Mutual fund/broker trying to make money. We're all stuck in a cycle because change is slow and MFs hold a LOT of firepower. They are also active players which are needed for price discovery and trading. The only thing we can we sure of is that the markets will change again, what works today will not work tomorrow.
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