Govt close to finalising 2nd ETF basket

The finance ministry's department of investment and public asset management (Dipam) is close to finalising the constituents of a second exchange traded fund (ETF).

ICICI Mutal Fund will manage this second ETF fund. The first one was launched in March 2014 and is managed by Reliance MF. It has garnered Rs 11,500 crore for the exchequer, in three tranches.

While the first ETF constituted exclusively of shares of state-owned companies, the second one, says sources, could comprise shares of at least two of three private companies in which the government holds a stake through Specified Undertaking of the Unit Trust of India. These are Axis Bank, Larsen & Toubro and ITC. Hindustan Zinc is another private entity in which the Centre holds a stake; part of that is likely to form the ETF basket as well. "The basket could also comprise listed state-owned banks and other financial institutions," a senior official said.

Dipam has issued a Request for Proposal (RfP) for financial and legal advisors for the ETF. The one for an asset manager, issued last year in August,r clarified that the ETF could also contain government stake in non-state-owned companies.

As with the first ETF, the second one will also be a new fund offer. Followed by a further fund offer or tranche or additional offering.

An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund but trades like a stock on an exchange. Its advantage is that it provides diversification to investors and is cheaper than investing in a fund. The brokerage fees are the same as trading in an individual stock. An open-ended ETF has no upper investment limit but a closed one has.

The constituents of the first ETF are Coal India, Oil and Natural Gas Corporation (ONGC), GAIL, Rural Electrification Corp, Power Finance Corp, Container Corp of India, Indian Oil, Oil India, Bharat Electronics and Engineers India. Of these, the largest are ONGC, with a 23.62% weight, Coal India (17.18%), and GAIL (16.81%). The other companies' weights range between 1% and 8.5% each.