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Few Takers, But Options Galore

ETFs are growing in popularity, but mostly only with mutual fund houses…

This calendar year itself, four exchange traded funds (ETFs) have been launched and five more are in the pipeline. In May itself, Axis Mutual Fund filed papers with the Securities and Exchange Board of India (SEBI) for four thematic ETFs while Benchmark Mutual Fund did so for a small-cap focused ETF, the first of its kind in the Indian mutual fund space. Benchmark Mutual Fund did move pretty quickly to come out with this product since the small-cap index it plans to invest in was launched by the National Stock Exchange (NSE) only in March 2011.

As of date, there are 30 ETFs available, 11 are focused on gold and the remaining 19 invest in various indices such as the Sensex, Nifty, Nifty Junior, CNX Bank, Nifty Shariah, CNX Infra, CNX Midcap, Hang Sang and Nasdaq 100.

Exchange traded funds allow investors to participate in the stock market by buying into an index. The units can be bought and sold like shares on the stock exchange at any time of the day and one can even short sell an ETF or buy on margin. Since they are passively managed funds, they have low distribution costs and minimal administrative charges.

However, there is not much of a fan following for such products despite the numbers increasing. From just five ETFs in 2003, we now have 30. If one looks at their percentage allocation to the total assets in the mutual fund industry, it touched a high of 2.43 per cent in 2006 and is down to just 0.82 per cent (March 2011). The drop is basically due to a fall in the assets of equity ETFs. The assets of Gold ETFs have seen a significant rise of 737 per cent since December 2007.