35 ICICI Prudential Mutual Fund schemes invest Rs 25 bn in Bharat-22 ETF

Several actively managed funds of ICICI Prudential Mutual Fund (MF) have exposure to the Bharat-22 exchange traded fund (ETF). In November 2017, when the ETF was launched, the 35 schemes offered by the fund house had invested a cumulative Rs 25 billion in the ETF. This accounted for 27 per cent of the ETF’s closing AUM for November. 

As of December 30, the number of schemes invested in the ETF reduced to 29 with the investment value slipping slightly to Rs 23 billion. However, ICICI MF’s schemes alone accounted for more than one-third of the ETF’s total AUM, which had shrunk 33 per cent to Rs 62 billion. As of May, the asset management company’s active schemes had exited its holding in Bharat-22 ETF, just ahead of the launch of the second tranche of the ETF. In the recent follow-on offering in June, five actively managed schemes of ICICI MF together took an exposure of Rs 6 billion, according to the MF’s latest factsheet. 

While there is no regulation that prohibits an actively managed scheme from taking exposure in a passively managed ETF,  observers feel that the practice of actively managed funds investing in passive ETFs should be discouraged, as unitholders pay a higher expense ratio for active fund management. 

The Bharat-22 ETF has also had a subdued run in recent times. In the last six months, the ETF has fallen over 10 per cent. In the same period, the benchmark Sensex has gained 4.5 per cent. To be sure, most large-cap funds have lagged benchmark indices with the category seeing an average return of one per cent. 

The ETF comprises 22 stocks in which the government has investments. The ETF was first introduced in November 2017 as a part of the centre’s 2017-18 disinvestment programme. Bharat-22 ETF is managed by ICICI Prudential MF.