Parag Kar invests regularly in exchange-traded funds (ETFs). He is comfortable investing in them because of their simplicity and low costs. He has started SIPs (systematic investment plans) in Nifty ETF and gold ETF. “It gives me the option to invest over a long period without bothering about market conditions,” says the Delhi-based investor, who works in a multinational company. Chennai-based SG Chellappa, who recently retired and manages his family’s portfolio, started investing in gold ETFs a year ago. “It is difficult to store physical gold and there is no guarantee of purity, hence, I find ETFs a better way to invest,” says Chellappa.
And if fund managers are to be believed, the trend is indeed catching up. “ETFs have recorded a growth of 65% in their AUM during the past one year,” says Sanjiv Shah, executive director, Benchmark Mutual fund, a mutual fund house that specialises in index-based schemes. The first ETF was launched by Benchmark in 2002 and since then they have come a long way. Today, ETFs manage Rs 4,787 crore, compared with Rs 3,000 crore in April 2008. While gold is the most popular ETF traded, there are several ETFs such as Bank ETF, and Nifty ETF which are catching investor’s fancy. So, what is driving investors towards ETFs?
Popularity Ratings...: In India, investors have just started warming up to ETFs in the past couple of years. The rising price of gold has played a major role in increasing the popularity of gold ETFs. In fact, this is why gold has become the most popular ETF option for investors. As prices continue to rise without a breather, investors have realised that holding gold in its paper avatar is not only convenient but is also a more cost-effective way of owning the precious metal. Besides Benchmark Mutual Fund, there are several other asset management companies such as Quantum, Kotak, HDFC, ICICI Prudential that offer gold funds.
“With a small amount of Rs 2,000, you can buy a gram of gold. There is no storage problem nor is there a doubt about purity, so this is the best method to invest in the yellow metal,” says Alok Churiwala, director, Churiwala Securities, a Mumbai-based brokerage house.
In addition, there are ETFs based on Nifty, Bank Index, Infra Index that are also gaining popularity. “In the US, six out of the 10 top traded counters are ETFs. Demand for ETFs is increasing and there are several more ETFs which are likely to be launched during the next one year,” adds Shah.
Benchmark has already filed documents with the regulator and is waiting approval for ETFs on energy and pharma. On the fixed income side, the fund house has filed for Gilt ETF. Motilal Oswal AMC, which runs the M50ETF, has filed for a midcap ETF with the regulator. “M50 found favour with investors since it gives weightage to stocks based on their valuations and performance rather than market capitalisation,” says Nitin Rakesh, MD&CEO, Motilal Oswal AMC.
...And The Advantages: There are several advantages of investing through ETFs. First is the reach. Exchange terminals are located across the country. You can buy the units on a real-time basis when the stock markets are open. “With NSE terminal location across the nook and corner of the country, it is very easy to reach investors,” adds Alok Churiwala.
Disclosure I am long at least 8 to 12 etfs at any given time.
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