Indian ETFs liked more abroad

Those operating overseas have more than 10 times the assets of their local counterparts

 

Exchange traded funds (ETFs) based on Indian equities seem more popular abroad than locally. The assets of such funds abroad are now more than 10 times the assets of similar funds in India.

Foreign ETFs have assets under management (AUM) in excess of Rs 55,000 crore, according to statistics from data provider Bloomberg. Indian ETFs, which do the same thing but are based out of India and cater to Indian investors, had a combined AUM of Rs 4,216 crore at the end of July, according to data from mutual fund tracker Value Research.

Ease of use for foreign investors looking to take a quick exposure to India has helped these funds garner assets, according to sector officials.

Locally, the most actively managed Indian funds have given higher returns than the benchmark index, whose returns the passively managed ETFs try to mirror, which has resulted in limited traction for the latter kind of funds here, they said.

Niranjan Risbood, director of fund research at Morningstar India, said most of these foreign ETFs had institutional money. “These investors look to take a short-term exposure to India using ETFs, as the expenses are lower by 80 basis points (bps) compared to 1.5-2 per cent for an actively managed fund. Also, there is no exit load in the case of an ETF,” he said.

An exit load is a fee an investor pays if he exits the fund before a certain period of time, say a year.

U K Sinha, chairman of the Securities and Exchange Board of India, recently observed that 85 per cent of MF assets had outperformed the corresponding benchmarks.

Vikaas Sachdeva, chief executive officer, Edelweiss Asset Management, said active fund management presented a more attractive investment option in spite of the higher expenses in India. “It is only now that expense ratios are starting to move up and investors are looking to see if it would be advantageous to use a low-cost equity product. A low-cost product can help add to returns in the long run,” he said.

In 2012, the regulator allowed MFs to charge an additional 30 bps as expense ratios for garnering funds from outside the top 15 cities.

Interestingly, the names of Indian AMCs are conspicuous by their absence in the list of large foreign ETFs. Operational issues associated with setting up abroad and a largely domestic focus for the sector has resulted in local fund houses staying away from launching funds abroad, according to officials.

Major foreign ETFs with India underlying include WisdomTree India Earnings, iShares MSCI India ETF and Lyxor ETF MSCI India.