Mutual fund houses are bullish about the phased entry of the EPFO into exchange traded equity funds from this month, as they believe it will boost investors sentiment.
The Employees Provident Fund Organisation (EPFO), which is the second largest institutional investor into Indian equities after LIC, sits over around Rs 6.4 trillion funds contributed by over six crore subscribers.
The retirement fund body is all set to invest around Rs 5,000 crore per annum in equity ETFs out of its total annual investible fund of around Rs 1 trillion, provided the industry meets certain conditions.
The equity ETFs market is a nascent one in the country with its AUM being a paltry Rs 3,500 crore last fiscal, and therefore the industry interest in the entry of the fund-flushed EPFO.
The EPFO wants the commission to be reduced to 0.10 per cent from the existing fee structure that ranges from 0.20 to 1.20 per cent now.
The fund also wants the tracking error to be minimal to ensure that the investment gets the best returns, an EPFO official said.
"So far, we have already held two rounds of meetings with Sebi on these issues," the EPFO official added.
The EPFO will start investing in ETFs from this month, beginning with an initial investment of Rs 1,000 crore, which by the end of the year will touch Rs 5,000 crore or 5 per cent of the Rs 1 trillion investible fund of the organisation.
When contacted, UTI AMC group president for sales and marketing Suraj Koeley told PTI that "reducing our expense ratio to 0.10 per cent should not be any problem for us as we will be getting money in bulk from the EPFO which will help raise investor sentiment.
"Unlike other mutual funds, equity ETFs are passive funds and hence we can ensure minimal tracking error involved into it," he added.
The retail and HNI portion of the AUM rose 50 per cent from Rs 1,102 crore in March 2014 to Rs 1,656 crore in March 2015 on the NSE platform, according to the data from the largest bourse.
The AUM of equity ETFs on the BSE could not be ascertained immediately.