SBI ETF Nifty 50, an exchange traded fund, has nudged past HDFC Equity to become the largest equity scheme in the country, a position the latter had held for more than three years.
SBI ETF Nifty has assets worth Rs 19,377 crore compared with Rs 19,093 crore managed by HDFC Equity, data from Value Research shows.
Managed by India's highest-paid fund manager Prashant Jain, HDFC Equity has been around for more than 22 years and has consistently featured among the top five largest equity schemes in the past decade. SBI ETF Nifty 50, on the other hand, was launched less than two years ago, making it perhaps the fastest growing equity fund in the history of the Indian fund industry.
SBI ETF has benefited from inflows from Employees' Provident Fund Organisation (EPFO) which has been steadily increasing its allocation to equities. It has also got significant money from a clutch of exempt provident funds, said sources.
"Change in EPFO regulation as well as investors' preference towards passive funds has played a key role in the surge in ETFs as an asset class. While the EPFO remains a major contributor in our ETFs, we have received significant inflows from insurance and pension funds, exempted PF Trusts, banks and financial Institutions, high net worth individuals and family offices," said D P Singh, executive director and CMO, SBI MF.
Last month, retirement fund body EPFO gave its nod to hike the investment limit in ETFs to 15 per cent from 10 per cent. This is expected to bring in an incremental Rs 18,000-20,000 crore into equities this financial year - and consequently boost SBI ETF Nifty 50's asset base even further.
ETF schemes run by SBI MF and UTI MF have cornered most of the EPFO inflows, with SBI MF mopping up about three-fourths of the investment, according to estimates. Assuming the current investment pattern remains unchanged, SBI MF could get an additional Rs 15,000 crore in inflows this financial year.
Of this, about Rs 12,000 crore could flow to SBI ETF Nifty 50 and the rest to SBI ETF Sensex, inflating the former's asset size to Rs 35,000 crore, provided market conditions remain favourable.
"The EPFO will prefer to park its money with government-owned entities such as SBI MF, at least in the initial stages. Besides there is no point in putting the corpus in ETFs of different fund houses as the underlying risk remains the same," said Manoj Nagpal, CEO, Outlook Asia Capital.
The EPFO had entered the stock market by investing 5 per cent of its investible deposits in August 2015, which was subsequently raised to 10 per cent in 2016. As of April 2017, the body's total investments in stocks/ETFs stood at about Rs 22,000 crore, with annualised return on investment of 13.7 per cent.
ETFs are traded on stock exchanges with stocks, bonds or commodities as underlying. An ETF's portfolio exactly mimics the securities in its underlying index, in the same weightage. Most index-based equity ETFs charge expenses to the tune of 5-15 basis points, which is the lowest among equity schemes in the sector.
SBI ETF Nifty 50 has given returns of 19.3 per cent for a one-year period, as per Value Research. According to experts, the growing size will not be a constraint for SBI ETF Nifty. "MF equity assets constitute a mere 4-5 per cent of the total market cap in India, so managing large schemes will not a problem, especially if inflows are regular and the fund sticks to a buy-and-hold strategy," said Nagpal.