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How India's ETF market became the second fastest growing in the world

BS Reporter / Mumbai 09 Mar 17 | 12:22 PM

India's exchange traded funds (ETF) market is now the second fastest growing market, second only to Japan, with assets more than doubling to $4 billion from $1.9 billion in the past three years, as per media reports citing Bloomberg Intelligence report. 


Here are three reasons why the growth of these products has picked up steam:

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CPSE ETF: The government roped Goldman Sachs Asset Management India to launch it's first ETF on 18 March 2014, comprising  a basket of 10 stocks majority owned by the Indian government. These include Oil and Natural Gas Corp, GAIL (India), Coal India Ltd, Rural Electrification Corporation, Oil India, Indian Oil Corporation, Power Finance Corp, Container Corp. of India Ltd, Bharat Electronics and Engineers India. The amount collected was about Rs 3,000 crore. The EtF has given handsome returns since inception with trailing one year returns of over 45 percent. This prompted the government to launch a follow on offering, wherein it garnered Rs 6000 crore in January this year. Another offering is likely this month wherein the government will aim to mop up Rs 2500 crore. This ETF is being managed by Reliance MF since Goldman's exit. 


EPFO: ETF assets have been greatly boosted by flows coming in from the epfo. In September last year, the epfo increased its equity allocation to 10,%. As per estimates about Rs 10,000 crore has been invested by the EPFO as of October last year. This amount may increase further if there is a decision to increase allocation to 15%. SBI MF's Nifty ETF which manages EPFO money recently crossed a size of over Rs 20,000 crore. 


Lower cost: expenses charged by etfs have been declining with rising assets. SBI Mutual Fund started the trend last year by cutting the expense ratio of its exchange traded funds (ETFs) to 7 bps, leading to a significant build-up in its assets. Several other funds have brought down their charges to near 10 bps. Earlier the charges were over 25 bps. 

 

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