Authors: B.Kalyan Kumar, Dr.M.Sravani

Abstract: Savings and investments occupy a central role in the financial culture of Indian households, where traditionally gold, fixed deposits, and life insurance were the preferred instruments. However, the liberalization of the economy, financial market development, and regulatory initiatives by SEBI have significantly changed the investment landscape. Mutual funds, with their diversification and professional management benefits, became the dominant choice for retail investors. In recent years, Exchange Traded Funds (ETFs) have gained traction, offering investors a hybrid advantage: they combine the low cost and transparency of index funds with the liquidity of stocks. The increasing availability of ETFs has sparked interest in their role within retail investors’ portfolios, especially in relation to traditional mutual funds. Do ETFs complement mutual funds by enhancing diversification and reducing costs, or do they substitute them by diverting inflows? This research addresses this question by studying the Evaluating the Impact of Exchange Traded Funds (ETFs) on Retail Investors’ Mutual Fund Portfolio Performance”. The study employs both primary and secondary data. A structured questionnaire was distributed among retail investors to capture demographic information, awareness levels, preferences, and perceptions of ETFs. Secondary data on mutual fund and ETF performance was also analysed using established performance measures such as Sharpe Ratio, Treynor Ratio, and Jensen’s Alpha. Findings indicate that while awareness of ETFs is still modest among Indian retail investors, those who include ETFs in their portfolios experience improved diversification and reduced overall costs. ETFs generally deliver benchmark-matching returns at lower expense ratios, enhancing long-term efficiency. However, mutual funds remain central to retail investors’ strategies due to SIPs, active management, and investor trust. Thus, ETFs are not substitutes but rather complements to mutual funds. The study contributes to literature by empirically demonstrating how ETFs influence portfolio efficiency in the Indian retail context. It also provides practical recommendations for investors to use ETFs strategically, for fund managers to integrate ETFs into mutual fund structures, and for policymakers to expand financial literacy initiatives to encourage broader ETF adoption.

DOI: https://doi.org/10.5281/zenodo.17257312