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ETF tracking Hang Seng opens today

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The first Indian fund to follow an overseas stock market index.

Under watch: A view of the floor of the Hong Kong Stock Exchange.
Under watch: A view of the floor of the Hong Kong Stock Exchange.

Ravi Ranjan Prasad Mumbai, Feb. 14

The first Indian exchange-traded fund (ETF) that will track an overseas stock market index will be launched on Monday on the NSE. The ETF will provide domestic investors exposure to companies listed on the Hong Kong Stock Exchange that constitute the Hang Seng index.

The Hang Seng Benchmark Exchange Traded Scheme (Hang Seng BeES), an open-ended ETF from Benchmark Mutual Fund, will track the Hang Seng .

There are 42 constituent companies in the Hang Seng index, including some familiar to Indian investors – HSBC Holdings, Hutchison Whampoa (Hutch Telecom shareholder before Vodafone's entry in India), Cathay Pacific Airways, China Mobile, and PetroChina.

“We thought China would be a good option for investors due to the high growth rate there,” said Mr Rajen Mehta, Executive Director at Benchmark Mutual Fund. “There could be more overseas offerings from Benchmark.”

The Hang Seng Index advanced 52 per cent in 2009.

ETFs are slowly gaining popularity in India. With the launch of the Hang Seng BeES, there will be 19 ETFs. They are almost a decade-old in the country now. The first Indian ETF based on NSE's Nifty index (Nifty BeES) was launched in December 2001. Precious metal-based ETFs were first launched in 2007. Of the 18 ETFs listed on NSE and BSE, six are on gold.

The average daily turnover of all ETFs is still a small percentage of the turnover on the bourses, being in the range of Rs 34-40 crore, according to industry sources.

Indian mutual funds' investment in overseas funds has been low as against RBI's revised overseas investment limit of $7 billion for mutual funds, which was set in April 2008. SEBI has set a sub-ceiling for individual mutual funds allowing them to invest overseas not more than 10 per cent of the net assets managed by them as on March 31 of each relevant year and subject to a maximum of $150 million each.

“MFs have a lot of headroom in overseas investment with a total investment of $1 billion as against the limit,” said Mr Rajen Mehta.

(This article was published in the Business Line print edition dated February 15, 2010)
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