Equity exchange traded funds catch retail investors' fancy

Last Updated: Wed, Nov 21, 2012 19:42 hrs

Exchange traded funds (ETFs), other than those of gold, are now fast catching the fancy of retail investors. Against the general perception that it’s only corporate bodies and financial institutions that show interest in Indian equity ETFs, the country’s retail investors and high net worth individuals (HNIs) are in majority when investing in the stock markets through this passive investment route.

Consider this : Over the past three years, the number of retail investors pumping money into index-ETFs has jumped close to six times. In absolute terms, the number of retail folios increased from a mere 23,398 in 2009 to 1,33,882 this year. Interestingly, the investors’ base growth in other ETFs has outpaced that witnessed by the industry in gold ETFs – the hot-selling asset category among Indian retail customers.

“The product comfort and convenience of investing in ETFs, along with rising awareness among investors, is slowly helping investments through this route,” says Jaideep Bhattacharya, chief executive officer (CEO) of Baroda Pioneer Mutual Fund.

Growth of retail participation in equity ETFs since 2009
  Sep’09 Sep’12
Retail AUM (crore) 130.8 362.13
Number of folios 23,398


Source : Association of Mutual Funds in India 
Some of the equity ETFs offered by fund industry
  • Goldman Sachs Banking BeES 
  • Goldman Sachs Hang Seng BeES 
  • Motilal Oswal MOSt Shares NASDAQ-100 ETF 
  • Motilal Oswal MOSt Shares M50 ETF 
  • Kotak Nifty ETF 
  • Kotak Sensex ETF  

Agrees Sanjay Sachdev, CEO of Tata Mutual Fund, “Investment in ETFs is a relatively new area in the Indian fund industry. Though worldwide it’s the other way round. Indexing strategy has not yet proven (itself) but the sector has high potential to grow going forward.”

Currently, amid a flood of gold ETFs, there are a few selective fund houses which are offering equity ETFs to investors. Players like Goldman Sachs, Motilal Oswal, Kotak, ICICI Prudential, Quantum and Reliance have equity ETFs in their product baskets.

As for equity ETFs, there are several index funds, banking sector funds and even international funds. For instance, Motilal Oswal AMC has its ETF for indices like CNX Nifty, CNX Midcap and Nasdaq 100. Similarly, Goldman Sachs offers bank ETF and an international fund with Hang Seng Index as its benchmark.

Rajnish Rastogi, co-head of equities at Motilal Oswal AMC, says, “ETFs are transparent and index-based funds with relatively lesser costs attached to them. Currently, out of our investor base in ETFs, participation from retail and institutional investors is almost equal.”

Industry experts believe that appetite for ETFs is on the rise steadily but they say regulatory restrictions are not letting industry offer full-fledged products in this category. Apart from gold, no other commodity-based ETF product is currently allowed in India.

“We have to live up with the regulations. We have not yet seen exotic ETFs coming to India because of regulatory issues. I believe once the regulatory framework changes, there will be more opportunities coming our way,” adds the CEO of another mutual fund house.

Industry players have been demanding silver and crude-based ETFs for long, but in vain. According to the Association of Mutual Funds in India, as on 31 October, assets under management in the category of ‘Other ETFs’ stood at Rs 1,715 crore. There are around 20 such funds available currently in the fund industry which saw sales of Rs 210 crore in October.

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