The Indian capital market may soon see the entry of some of the biggest names in the exchange-traded fund (ETF) space. While ETFs are among the largest investor groups globally, their size and exposure in India is still at a nascent stage.
According to Reid Steadman, global head of ETF licensing, Standard & Poor’s (S&P), large global ETF providers like Blackrock’s iShares, State Street and Deutsche Bank are expected to launch their products in India. “I think it is natural that they will eventually show up here (in India). We are seeing it all across Asia,” he said.
ETFs are open-ended index funds, the shares of which are listed and traded on stock exchanges. The global assets under management (AUM) of ETFs are around $1.3 trillion. The US and Canada account for a bulk of the ETFs with AUMs in the region pegged around $929 billion.
According to S&P, there are 16 ETFs in India with about $326 million in assets as of December 31, 2010. While the first ETF — Nifty BeES by Benchmark AMC — was launched in 2001, the category had been slow to take off, said Steadman. Motilal Oswal AMC and Benchmark will soon launch ETFs based on S&P500 in India.
ETFs score over index funds — another form of passive funds — in terms of the cost component. In the US, the average annual management fees for an equity index fund is 0.93 per cent, while the same for an ETF is 0.34 per cent. The trend is similar in Europe with the average fee pegged at 0.91 per cent and 0.40 per cent for equity index funds and ETFs, respectively.
In the Indian market, however, the scenario is vastly different. According to Steadman, the low differential in cost when compared to index funds is an issue here. “In India, may be the cost advantage is not as great as in other markets,” he says, attributing the trend to lack of competition.
Incidentally, about 20 India-focused ETFs are listed on overseas stock exchanges. Out of this, five are listed in the US, while six are listed in France.
