Little interest, but promising show

Little interest, but promising show
Exchange-traded funds or ETFs are slowly gathering pace in India, having unique advantages over other mutual funds, such as lower cost and giving investors the convenience of intra-day purchase and sale on the stock exchanges to take advantage of the prevailing price.

With the exception of gold ETFs, other ETFs are yet to attract the attention of retail investors. This is despite the fact that India had its first ETF, Nifty BeES, based on Nifty, way back in 2002.

Year 2012 saw moderate growth in assets under man­agement of ETFs (excluding gold ETFs), due to inflows from institutional investors and partly from retail investments. Acco­rding to Amfi data, the AUM grew from Rs 1,603 crore in June quarter to Rs 1,806 crore in the September quarter. Things may change for the better, as the Rajiv Gandhi Equity Savings Scheme will for the first time provide tax concessions to investors in ETF products only. This may lure both stockbrokers and fund houses to lure the uninitiated to ETFs in the coming months.

There are nearly 20 ETFs in India (exclu­ding gold ET­Fs), mostly from Bench­mark AMC (now Goldman Sachs AMC after the US fund house acquired the Indian firm), followed by Motilal Oswal AMC.

The past 12 months saw spectacular returns from bank ETFs, which track banking stocks, owing to the good performance of underlying private sector banks. R*Shares Banking ETF of Reliance Capital AMC was the best performer among ETFs, giving 55.04 per cent returns over the 12-month period, according to NSE data. The second best performer too was a bank ETF; Goldman Sachs Banking Index ETF, which gave 34.50 per cent return.

ETFs tracking the mid-cap indices have also performed well so far this year. Junior BEES, which tracks NSE’s Junior Nifty index gave 28.31 per cent return while Motilal Oswal’s M-100 gave 22.64 per cent.

Even Nifty ETFs should do well, given that the NSE benchmark index returned 27.7 per cent year-to-date. During the 12-month period, Nifty gave 16.69 per cent. Several others ETFs have given similar or even better returns.

Rajnish Rastogi, senior vice-president and co-head of equities at Oswal AMC, said he expects more institutional funds – both from FIIs and local financial institutions, to pour money into ETFs as part of their India asset allocation strategy.

Motial Oswal AMC’s ETF tracking Nasdaq-100 posted good returns this year at over 20 per cent. Nimesh Shah, MD & CEO of ICICI Prudential AMC, is of the opinion that the role of active fund managers will remain in a country like India. But as the market deepens, a section of investors will look towards passively managed vehicles such as ETFs. zz


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