ETFs shine in widespread market rally

Thanks to the widespread market rally in the last few months, most of the passively managed exchange-traded funds have delivered 20-45 per cent return in the first seven months of this fiscal, after disappointing investors with negative or single digit return last year.

The mid-cap ETFs have outperformed both the large-cap and index-based ETFs between April and October this year. Nippon India ETF Nifty Midcap 150 and Motilal Oswal Midcap ETF have topped the table with return of 45 per cent each, after delivering negative return of 4 per cent and 7 per cent, respectively, between April and October, 2019.

While the recently launched ICICI Prudential Midcap 150 ETF has given 44 per cent return, the ICICI Prudential Midcap Select ETF has delivered 42 per cent against negative 5 per cent return in seven months ended October, 2019.

CPSE, Bharat ETFs

Interestingly, the CPSE ETF and Bharat 22-ETF, which attracted the maximum retail investors interes,t had given just one per cent and 7 per cent return, respectively, in the first seven months of this fiscal against negative 9 per cent and four per cent recorded last year. Of the 66 listed ETFs, only Kotak PSU Bank ETF and Nippon India ETF PSU Bank BeES have registered negative return of five per cent each in the seven months ended October against negative 25 per cent return each logged last year.

Himanshu Srivastava, Associate Director, Morningstar India, said though the last six months have been good for these funds, adding that the performance of the ETF would depend on the performance of their underlying indices, given their passive nature.

The Indian markets have witnessed a rather broad-based rally in the recent times, with most of the indices performing well. If they continue in the same vein going ahead, then ETF would benefit the most, he added.

Chirag Mehta, Senior Fund Manager (Alternative Investments), Quantum AMC, said the passively managed ETFs would do well as long as the market bet on economic recovery comes true rather than excess liquidity driving the markets up.

More launches

Riding on the positive returns, mutual fund houses have hit the market with a series of new ETFs in recent months. However, the fund raised through the fresh issues were minimal due to lack of investors awareness on ETFs and the bare minimum commission paid to distributors.

Mutual funds are allowed to charge an expense ratio of just 0.5 per cent to 0.75 per cent on passively managed ETFs ,while it can go up to 2.25 per cent for an actively managed funds.

In October, SBI Mutual Fund raised ₹23 crore, with two ETFs on IT and Private Bank,while UTI MF mopped up ₹39 crore in September with Bank ETF.

In August, HDFC Banking ETF, ICICI Pru Alpha Low Vol 30 and ICICI Pru IT ETFs have cumulatively attracted an investment of ₹146 crore.

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