The Hindu Business Line : Benchmark Mutual Fund plans ETF on sectoral indices

BENCHMARK Mutual Fund, which specialises in managing exchange traded funds (ETFs), has lined up a scheme that will try to generate returns through investment in securities represented by a host of sectoral indices.

The indices - the offer document sent to SEBI mentions nine of them - are owned by India Index Services & Products Ltd, the joint venture formed by NSE and Crisil to provide a variety of indices and index-related services for the capital market.

These indices cover the following sectors: Automobiles/four-wheeler, cement, electrical equipment, pharmaceutical, power, steel, telecom, services and information technology.

Their names are S&P CNX Pharmaceutical Index, S&P CNX Cement and Cement Product Index, S&P CNX Power Index and the like.

The ETF's investment objective is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the index. Its performance, however, may differ due to tracking error.

The plan is to use a passive or indexing approach, with no intention to beat the market. Therefore, the scheme will not try out transitory defensive positions when the market weakens or look over-valued.

Here, the ETF will invest at least 90 per cent of its assets in the stocks of its underlying index, the offer document has stated.

The MF has named Mr Vishal Jain as the fund manager.

Investing rules:

An ETF, it may be mentioned, can be bought and sold (like any other listed stock) on the exchange - NSE in this case - anytime during market hours at prices that are expected to be close to the actual NAV. The minimum investment for an ETF is one unit.

An investor is expected to know about the following:

Creation Unit: A fixed number, which is exchanged for a portfolio of shares underlying the index, called the Portfolio Deposit, and the Cash Component. The facility of creating and redeeming units in Creation Unit size is available to `authorised participants'.

The number of units that investors can create and redeem in exchange of the Portfolio Deposit and Cash Component is 10,000 units (and in multiples).

Portfolio Deposit is a pre-defined set of securities that represent the underlying index; it will be announced by the fund on a daily basis. Cash Component represents the difference between the applicable NAV of a creation unit and the market value of the Portfolio Deposit. This difference will represent accrued dividends, annual charges etc. In addition, it will include transaction cost.

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