Exchange traded funds set to flood the capital market soon

It could rain exchange traded funds (ETFs) in the market soon as different fund houses line up innovative variants to this instrument that is gaining popularity in the country.

ETFs have been a big draw among retail investors in the last one year as they understood the primary benefits of diversification, risk control and lower transaction costs provided by this financial instrument. At least four to five ETFs could hit the market in the next few months including some interesting ones that are intended to tap inflows from foreign portfolio investors (FPI), say market watchers.

On the anvil are ETFs based on the MSCI India Domestic Index (MSCI IDI) and two fund houses — Edelweiss MF and Reliance — have filed offer documents for launching such product. The other fund houses which have lined up new ETF products include Kotak and SBI.

Indications are that Edelweiss ETF based on MSCI IDI will get listed on the NSE.

With the MSCI indices enjoying high degree of comfort among foreign fund managers, it is reckoned that the ETF designed around the newly created MSCI IDI will find good interest among foreign fund managers.

“An ETF based on the MSCI IDI, will get our investors a wider representation of the Indian market,” says Vikaas M Sachdeva, CEO of Edelweiss Asset Management.

MSCI India Domestic Index is designed to represent the performance of the domestic India market, based on the MSCI global investable market Indices methodology.

There are no limits to the number of stocks in this index and helps capture wider market capitalisation to the extent of say 85 per cent, as against 70 per cent captured by Nifty index (which has 50 stocks).

Building on the success of its CPSE ETF last year, the Central Government is also toying with the idea of an ETF product as part of its divestment programme, sources said.

There has been an exponential growth in assets under management of existing 29 equity ETFs listed in India.

From a level of ₹927 crore in March 2014, the assets under management have grown to ₹6,282 crore in February 2015.