Fund houses have been getting innovative when it comes to product design. The latest example is launch of ETFs with varied features.
Three fund houses – UTI Mutual Fund, ICICI Prudential Mutual Fund and Axis Mutual Fund have launched ETFs in a new avatar. While UTI MF has launched UTI Nifty Next 50 ETF to invest in companies beyond top 50 companies of NIFTY 100 index, ICICI Prudential MF came out with one-of-its-kind smart beta ETF called ICICI Prudential Nifty Low Vol 30 iWIN ETF. Axis MF launched a plain vanilla ETF called Axis Nifty ETF to add to its offerings.
Currently, the ETF market in India is underdeveloped and most investors invest in actively managed funds as these funds can beat their respective indices by a healthy margin. However, beating benchmarks will become challenging for managers with the development of equity markets in India.
As most fund houses have already launched Sensex and Nifty ETFs, they are now focussing on launching ETFs that track other indices.
UTI MF’s UTI Nifty Next 50 Exchange Traded Fund will take advantage of the subsequent increase in the market cap and share price of the constituents of the Nifty Next 50 Index. The Nifty Next 50 index represents 50 companies from Nifty 100 Index after excluding the Nifty 50 companies.
Suraj Kaeley, Group President (Sales and Marketing), UTI Mutual Fund, says ETFs are highly flexible and can be used as a tool for gaining instant exposure to equity markets. “UTI Nifty Next 50 ETF has a number of benefits such as diversification, low cost and transparency. Investors can invest in a diversified portfolio representative of the broad Indian economy and create a long term 'core' holding in their portfolio," says Suraj.
On the other hand, ICICI Prudential MF’s smart beta ETF, ICICI Prudential Nifty Low Vol 30 iWIN ETF is a subset of broader market ETFs and are based on various parameters such as dividend yield and price-to-earnings ratio. In contrast to the broader market ETFs, such as Nifty ETF and Sensex ETF, smart-beta products do not depend on market capitalisation.
Talking about the ETF, Chintan Haria, Fund Manager and Head-Strategy & Products, ICICI Prudential Mutual Fund, says, “ICICI Prudential Nifty Low Vol 30 iWIN ETF is India’s first smart beta ETF based on low volatility factor, which is not based on market capitalisation. This ETF will track the least volatile 30 stocks from the Nifty 100 universe.”
Explaining the divergence between the ETF and broader market ETF, Chintan says that the overlap of this ETF with the broader market indices will not be more than 50%.
Similarly, Axis Mutual Fund, the new entrant in the top 10 league, had also launched Axis Nifty ETF last month. “As a house we should have a bouquet of products so that investors from all walks of life and risk profile can invest with us. We are keeping in mind that in 5-10 years, ETF market will surge in developing markets like India,” says Jinesh Gopani, Head of Equities, Axis Mutual Fund.
