 "ETF space sees step-up in heat")
The domestic exchange traded fund (ETF) market is set for a boost, with entry of pension money into equities being allowed through this route, putting renewed focus on this investment vehicle.
The country’s asset management companies (AMCs) are gearing up for the opportunity. Also, stock exchanges where these ETFs are traded are taking measures, like market making, to boost the appeal of these passive investment products.
ETFs are considered low-cost investment options that track returns of an underlying security or asset. They generally track an index, a basket of securities, commodities or debt securities. As the name suggests, ETFs are traded on an exchange like a single stock.
| ACTIVE VERSUS PASSIVE |
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Active: No. of schemes: 310 Assets (Rs cr): 3,46,990 Passive: No. of schemes: 36 Assets (Rs cr): 8,920 |
Experts say as our equity markets mature, more investors will opt for passive as against active investing, the preferred route at present. Currently, equity ETFs, with assets of Rs 8,920 crore, account for a little less than three per cent of all equity assets under management (AUM), Rs 3.5 lakh crore at the end of September.
However, the equity ETF market is set for exponential growth if the new launches and optimism shown by the country’s fund houses is anything to go by.
Already this year, asset management companies (AMCs) have launched eight new ETFs, taking the total to 36. More fund houses, including ICICI Prudential and Edelweiss, have planned further launches.
Also, the country’s third largest AMC, Reliance Mutual Fund’s decision to acquire ETF-focused Goldman Sachs Asset
Management this week is essentially to tap the expected boom in the ETF space.
Goldman Sachs in India operates 10 ETFs, including the biggest, the so-called CPSE ETF which has assets of Rs 2,200 crore.
“We see a big opportunity for ETFs in India,” says Sundeep Sikka, chief executive officer of Reliance MF. “Globally, we have seen that as the active fund market matures, the ETF market starts to grow big. Also, a lot of institutional investors will increasingly start looking at ETFs.”
On institutional money, the ETF got a big boost in July when the country’s Employees' Provident Fund Organisation (EPFO) commenced its first-ever equity investing through this route. With assets of Rs 6.5 lakh crore and 80 million members, it is one of the world’s largest pension bodies.
The fund, however, is currently investing only one per cent of its funds into equities and plans to scale it up to five per cent of incremental flow.
Recently, India's second largest fund house, ICICI Prudential AMC, gave a proposal to the Securities and Exchange Board of India to launch as many as four ETFs. Two of the proposed schemes have the oil & gas and metals index as underlying products, the first of its kind in the sector.
Chintan Haria, fund manager & head of product development & strategy at ICICI Prudential AMC, said: "As part of our overall ETF strategy, we intend to provide a wider product range for investors to benefit from."
"The biggest factor stoking interest in ETFs are the large assets from EPFO," said a senior fund executive. The hope in the sector is for EPFO to raise its equity exposure to as much as 15 per cent.
ETFs are also likely to gain in appeal as the debate to cut costs of transacting gains prominence. The expense ratio for ETFs is 30-50 basis points; for active management funds (that come through a distributor or agent), it is around 2.5 per cent.
