Fund houses uncomfortable with upfront high marketing expenses

The launch of the Central Public Sector Enterprise Exchange Traded Fund (CPSE-ETF) is likely to be delayed further. The deadline for submission of proposals by mutual fund houses for the setting up of the CPSE-ETF is likely to be extended by two more weeks, said sources in the know. The deadline expires on February 8, which had earlier been extended from January 24.

The CPSE-ETF, an exchange-traded fund consisting of stocks of listed public sector companies, would serve as an additional mechanism for the Union Government to meet its disinvestment programme.

The Department of Disinvestment had requested for proposals from fund houses interested in setting up the ETF.

Rs 15-cr hitch

Fund houses have been uncomfortable with the upfront high marketing expenses they are required to incur. This has been fixed at Rs 15 crore. According to industry sources, fund houses interested in bidding for the creation of the ETF met the Department of Disinvestment officials last week and presented their case which led to the extension of the deadline.

The marketing expenses to be incurred would be over and above the expenses involved in creating the ETF such as the brokerage charges, distributor expenses and index creation charges. So far, six fund houses have shown interest in bidding for the ETF. They are DSP Blackrock, Goldman Sachs, Kotak Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund and UTI Mutual Fund.

Doubt over opportunity

Industry officials said a promotional campaign for a new fund offer would cost about Rs 7-8 crore. For an ETF, it is much lower at about Rs 2 crore, they added.

“Also, while it is a good opportunity, it is difficult to say whether it is a big enough opportunity that justifies this level of expenditure,” said an industry source referring to the relative underdevelopment of the ETF market in India.

As of December 31, 2012, the total assets under management (AUM) of the equities schemes are Rs 1.68 lakh crore. Of this, the ETF AUM accounts for less than one per cent at Rs 1,676 crore.

(This article was published on February 7, 2013)
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