Edelweiss MF in lead for govt's debt ETF on group backing, lower fee

Edelweiss Mutual Fund (MF)  has emerged as the front-runner in the bid to manage India’s first debt exchange traded fund (ETF), which will have a portfolio of debt papers of the central public sector entities. 

Edelweiss MF is awaiting written confirmation from the government and declined to comment.

Other bidders in the fray were Reliance MF, SBI MF, UTI MF and Aditya Birla Sun Life MF. While the four have had a longer track record in the MF business and experience across product categories, people in the know said the combination of a small fee and strong parent group put Edelweiss MF in top spot for the mandate.

According to the people, Edelweiss MF made the bid as part of the Edelweiss group, given the Department of Investment and Public Asset Management (DIPAM) allowed consortium bidding. 

The Mumbai-based group has businesses across various segments of the financial markets. Its asset reconstruction company (ARC) — which acquires distressed assets with possibility of revival - is the largest in the country with assets of Rs 43,582 crore as of March 31, 2018. 

According to industry sources, running an ETF for the government comes with its own set of costs. The fund house managing the debt ETF will have to set aside at least Rs 20 crore for marketing, promoting and distributing the ETF. 

Additional offerings will lead to higher costs. “The minimum expense that the AMC shall be required to incur towards the additional offerings will depend on the tranche size or the tap quota and will be proportionate to the expense incurred for the NFO (new fund offer),” read the DIPAM’s request for proposal. 

Unlike other recent ETFs such as the CPSE ETF or Bharat 22-ETF, proceeds from the debt ETF will not directly flow into the government’s kitty. 

The debt ETF will help state-owned firms raise funds from bond markets for their capex needs. The ETF is also expected to widen the pool of investors subscribing to these firms' debt papers.