Exchange-traded fund theme attracts MFs

Sneha Padiyath Updated - May 10, 2011 at 11:17 PM.

With the assets under management of exchange-traded funds on its way up, mutual fund houses are looking to cash in on the growing investor interest in this category.

Last Friday, Axis Mutual Fund filed for SEBI approval for four new sector-based ETFs - banking, energy, metal and FMCG. On Tuesday Benchmark AMC applied for a smallcap ETF.

More and more fund houses seem to like the idea of ETFs as they are relatively cost-efficient and involve no active stock-picking. The total AUM under ETFs has moved up by Rs. 1014 crore in the month of April to Rs. 7462 crore, according to SEBI data.

“ETFs are bound to grow as they are sold through stock exchanges and therefore have a wider reach. Also, the cost of managing these funds is much lower as compared to other funds,” said Mr. Waqar Naqvi, CEO, Taurus Mutual Fund.

ETFs have not quite taken off as a concept in India. Sector-based funds are an even newer concept in India; except for a few banking sector ETFs like Kotak PSU bank ETF, PSU Bank Benchmark ETF and Reliance Banking ETF, the rest of the ETFs are all index-based or gold-based.

While sector-based ETFs are a new concept in India, fund mangers feel that the trend would gradually pick up as fund houses look to gradually expand the ETF segment. “The AUM under ETFs in the industry is just under 5-6 per cent of the total AUM under equity schemes. With ETFs gaining popularity among FIIs and DIIs, fund houses would want to expand their ETF product base,” said Mr. Nimesh Mehta, Vice President & Head – Product, Sales and Distribution, Motilal Oswal Asset Management Company.

Motilal Oswal AMC, along with Benchmark AMC are the only two ETF-focussed fund houses in the industry.

Of the plethora of funds in the industry, there are only 29 ETFs; 11 gold ETFs and the rest equity-based ETFs. While internationally ETFs are equity based, commodity-based and metal-based in India SEBI is yet to give its approval for ETFs other than for equity and gold. Benchmark is still awaiting SEBI nod for its silver ETF.

Mutual fund managers feel that SEBI is being cautious about giving its approval for metal ETFs because of storage and security issues. “ETF investments are to be backed by physical assets which would increase the cost of managing these funds. The value of a metal in this case is a determinant of that cost. The amount of physical silver backing a few thousand crores of AUM will be much larger than the physical gold backing an AUM of the same size,” said a fund house official.

Published on May 10, 2011 17:47