Equity ETFs see 35% jump in investors over 2014

Rising awareness and launch of Central Public Sector Enterprises fund reason for improving appetite

Equity exchange-traded funds (ETFs) have seen much more demand from Indian investors in the past year.

With rising awareness about these passive investment products, coupled with successful launch of the government’s Central Public Sector Enterprises ETF in March last year, the category has seen a jump of 35 per cent in investors.

In December 2013, the number of folios in the equity ETF category was 162,000. In November 2014, it was 220,000, show data from the Securities and Exchange Board of India.

A majority of the additions came via the CPSE ETF, which experts said had led to 35,000 new folios. Also, continuous retail participation in equity ETFs, plus strong inflows from wealthy individuals, have helped the surge in accounts.

The CPSE ETF came with a loyalty bonus. An extra unit goes for every 15 held by the initial retail investors for a year after the allotment. Over and above the appreciation and dividends, the loyalty bonus component translates into almost seven per cent extra gain.

According to a sector executive, who spoke on condition of anonymity, “The rise in investors in equity ETFs is likely to continue. Their experience has been quite good, be it the gold ETFs or the recent CPSE ETF. All have made money, which will spur further opening of accounts in the segment.”

He added that as applicants in the CPSE ETF were retail investors, it is unlikely they would have booked profits.

Experts said revival in the sentiment towards public sector units (PSUs) stocks saw a lot of investors taking exposure to these companies through the ETF route, instead of individual stock picking. The components of the CPSE ETF comprise blue-chip and high dividend paying PSUs, such as Oil and Natural Gas Corporation, GAIL and Coal India.

Dhirendra Kumar, chief executive, Value Research, had earlier told Business Standard: “The CPSE ETF has spelt a bonanza for investors. A series of things have gone in its favour. First, it comprised high-quality PSU stocks. Pricing was at the lowest rate. With the change in government, the outlook for these stocks underwent a drastic change.”

There were 29 equity  exchange-traded funds managing an asset size of nearly Rs 6,000 crore as on end-November 2014.