ICICI Pru files documents with Sebi for 4 new ETFs

Two of these are to be based on metals and oil & gas, sectors where companies' shares have taken a sharp beating

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The country’s second-largest mutual fund entity, ICICI Prudential Asset Management Company, plans to launch four exchange-traded funds (ETFs), an investment vehicle yet to gain traction among domestic investors. It has filed offer documents for these with the Securities and Exchange Board of India. Two of these are to be based on metals and oil & gas, sectors where companies’ shares have taken a sharp beating. Oil & Gas ETF, Metal ETF, MidCap ETF and NV20 ETF are the four new products it has sought approval.

The domestic ETF market with equity as underlying product has assets less than Rs 9,000 crore. ETFs with gold as underlying commodity has assets of another Rs 6,200 crore.

ETFs are passive investment products, which track an index or a basket of securities. Typically, they mirror the performance of an index or a commodity. “As part of our overall ETF strategy, we intend to provide a wider product range for investors to benefit from,” said Chintan Haria, head of product development & strategy at ICICI Prudential AMC.

It remains to be seen whether the Metal ETF would draw investor interest, as scrips of companies in this sector were recently hammered. The BSE metal index is down 32 per cent so far in 2015; the oil & gas index is down 8.4 per cent. Several of the metal stocks — Tata Steel, Hindalco, Vedanta, Nalco, NMDC, SAIL — have lost more than half their values from their 2015 highs. Similarly, counters of Bharat Petroleum, Cairn India, GAIL, Indraprastha Gas, Indian Oil and ONGC have fallen from their 52-week highs.

The proposed NV20 ETF is based on the National Stock Exchange’s NV20 Index, comprising the “20 most liquid value blue-chip companies”.

Recent ETFs launched by fund houses such as Edelweiss MF, Reliance AMC and SBI MF have been able to raise only a meagre amount. Experts have doubts whether the story of new ETF launches will be any different. “ETFs have not been able to become a mainstream investment among Indians. These are quite cyclical in nature, as they are mounted on indices. I believe there is no appetite for ETFs in India, as of now,” said Dhirendra Kumar, chief executive of fund tracking firm Value Research.

ETFs as a segment have been present for nearly 15 years. However, they don’t even account for one per cent of the segment's total assets. Globally, it is different, with the ETF market a $15-billion one, say sector executives.

Some experts see the silver lining and believe that as the crack down on commissions - trail and up front - continues and questions are raised on the higher cost of active fund management, distributors will slowly turn towards recommending ETFs to investors. Additionally, lower penetration of ETFs in India is attributed to distributors' apathy towards such funds.