NSE bets on ETFs, other new products to expand market

Pitching for introduction of new products to make Indian capital markets deeper and more

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competitive, leading bourse NSE says ETFs can be the best bet for drawing mass retail investors to equities in a big way.

Retailing of government securities and other bonds can be another big draw among small investors, National Stock Exchange's MD and CEO Chitra Ramkrishna said.

ETFs or Exchange Traded Funds are like mutual funds that comprises of a host of securities and their units can be sold and purchased through stock exchanges like individual shares.

"There are two different requirements -- the institutional and high-end investors require complex, sophisticated products meeting different needs of their risk profile etc, while the mass retail investors need simple products that they can invest in.

"As an exchange, it is our business to provide both ends of the spectrum and we need to bring in right products for both kinds of investors," Ramkrishna told PTI in an interview.

Ramkrishna, who has been associated with NSE since its inception 20 years ago and assumed charge as its CEO in April this year, said that India needs to deepen and broaden its capital markets.

"Rather than just worrying about the exports of our markets to foreign locations, we should also open up further and be more competitive.

"NSE is fully geared up to do its part, be it new products, new infrastructure etc, to contribute to the growth of Indian markets for its next big leap," she said.

NSE will soon launch a new product that would provide investors to trade in 10-year government securities interest rate futures.

When asked when this new product can be launched, the NSE chief said it couild be "very soon".

"We have had meetings with banks, mutual funds and other entities to sound them out on the new product, get their feedback and understand their readiness. The product should be launched in next few weeks," she added.

"Apart from IRF, the other products that we are very upbeat about are ETFs. We really think that it is a product that is appropriate for the mass retail investors in India. If we can have good broad- based ETFs, that would be the kind of passive investment vehicle that any retail investor should be looking at," she added.

Pitching hard for equity ETFs as the best product for mass retail investors, Ramkrishna said, "It is a passive investment vehicle and it is one of the cheapest products in the world today. That is the reason why ETFs have grown so much today.

"You don't have 2-3 per cent costs associated with ETFs, rather they have basis points kind of cost structure. Second, one time you may have to think which ETF to go for, but once you have decided on that, you do not need to keep a track on day-to-day basis."

"It's definitely appropriate for the retail investor's perspective. Second, you can have an exposure to so many stocks with just one ETF and that is a very good way to start. We are very very upbeat about ETFs.

"The last 3 years, we have seen a tremendous growth in AUMs of ETFs, but this growth has been mostly because of a small base and there is a huge potential going ahead," she said.

When asked whether the mass retail investors would ever be attracted in a big way to derivative-linked products, NSE chief said there were different types of investors.

"At one end, you have HNIs, the investors who are willing to spend time to understand the products, they have greater risk profile, these are the people who can buy all the derivatives and other products.

"But when it comes to the masses, those who are at the bottom of the pyramid, for them we need mass-standard products. There we don't need ten mass products, we need just a few standard products, which are simple to understand," she said.

Apart from ETFs, Ramkrishna said, there may be bond products for the masses.

"The bond ETFs could be another good product, as also the retailing of government securities could be another big idea. Why can't government securities be bought by mass retail investors. It was the case in 60s, when people used to buy government securities in a big way," she said.

About domestic equity culture, Ramkrishna said that there are hardly about 1.5 crore domestic investors in the country and it was not the case that these many people are actually trading in the markets every day.

"There are people who might have invested at any point of their life," she said.

"I am not even saying that all of them should come directly to the market, but savings form a very small proportion of the equity capital in this country. Unless we are able to create an environment where more savings come into the market, we can not create capital for growth. We need to think what do we need to do get retirement money to the market," Ramkrishna said.

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