Realty ETF high on MF companies' plans

It seems that the Indian mutual fund companies are not only dazzled by the glitter of gold but also by the shine of an estimated Rs 1,30,000-crore worth realty sector.

Till now, two companies have launched their Gold Exchange Traded Funds (ETFs) and many more companies, including Lotus

India AMC, are planning to launch their gold ETFs within a few months. These companies are also awaiting the Securities and Exchange Board of India (Sebi) guidelines on real estate ETF.

Country's second Gold ETF after Benchmark AMC's Gold ETF called 'Gold BeEs' was launched in Ahmedabad on February 27 and the company's next product will be a real estate ETF.

Similarly, many more companies have applied for the ETF of the precious metal. New companies are also eying a share in the gold and realty business. Lotus India AMC, a pretty new MF company is planning to launch its Gold ETF within a couple of months and it is also preparing itself for the real estate ETF pie while waiting for the Sebi guidelines.

Talking to Business Standard, Arvind Mittal, regional sales head (west), UTI MF, said, "After the Gold ETF, the company plans to launch real estate ETF as soon as the Sebi guidelines are announced. Though the business potential in realty is huge, it cannot be compared with gold ETF business. We were quite ready to launch the Gold ETF when Sebi had issued guidelines one-and-a-half months ago. Similarly, we will be ready to launch realty ETF too once the guidelines are out."

Ajay Bagga, CEO, Lotus India AMC, said, "We will launch Gold ETF within the next couple of months and are ready to enter into the real estate ETF market also once the guidelines are issued by Sebi."

When asked how much time it might take for Sebi to launch the guidelines, he said, "We expect that the Sebi might launch the guidelines within the next six months. But it might come up even earlier."

Talking about the enormous potential in the real estate ETF business in India, he said, "According to an estimate, the total real estate market size is near about Rs 1,30,000 crore. Just imagine if one per cent of this investment is converted into mutual fund then what will be the realty ETF market size in the country!"

"The gold ETF also has a bright future in India. Traditionally, the Indian investor has always been investing in gold. Indians will always prefer to invest in Gold as no ups and downs in the stock market can affect the prices of gold. On the other side, Indian MF investors are not so aware of other commodities like silver and oil. But these commodities will also foray into MF market once the gold market grows fully."

Talking about UTI's gold ETF, Mittal said,"The company targets an investment of around Rs 600 crore through this product. The total Gold ETF market size in India is projected to go up Rs 2,000 crore by the end of 2008 and by the end of 2009 it will grow up to Rs 7,000 crore. The total gold consumption of India is around 750 tonnes per annum. Of this 35 per cent is consumed as investment. The target of MF companies will be these investors."

On how the Gold ETF will grow in the Indian market, Mittal said, "Initially five to six per cent of the total 35 per cent of gold investment will be converted into ETFs. After that there is only growth in the sector as Indian investor is traditionally a gold investor and the product has succeeded in countries like Australia, Turkey and many European countries. These countries are not traditionally into gold investment so in India gold ETF will surely be a major success."

About possibilities of ETF in other commodities like oil and silver, Ravi Bhatia, research analyst of UTI MF, said, "The market will respond to gold far better than other commodities like silver and oil as gold does not have many spot exchanges while other commodities have spot exchanges. However, discussions are on between the Forward Market Commission (FMC) and Association of Mutual Funds in India (AMFI) in this regard. Depending on the outcome of these discussions many more commodities like oil and silver may be added in the country."