Anxious about the intense volatility in the equity markets, investors appear to be shying away from the equity schemes with several buyers preferring to invest in the various exchange traded funds (ETFs). An ETF is a fund with an underlying base of securities comprising, for example, the 30 stocks that make up the Sensex or the 50 stocks in the Nifty basket. The ETFs are listed on the exchanges and can be bought and sold like shares.
According to the data provided by the Association of Mutual Funds in India (Amfi), total assets under management (AUMs) of ETFs, including gold, stood at Rs 2,687 crore in the month of January, which was over 10% the amount at the end of November 2009. The AUM of ETFs in November 2009 was Rs 2,443 crore.
Apart from the increase in the AUM, there has been a steady surge in the investor accounts investing in the ETFs. According to Amfi, the total number of investor accounts in ETFs stood at over 1.65 lakh in January compared with Rs 1.43 lakh in November last year, an increase of approximately 14%.
A senior fund manager with the leading fund house said, ?ETFs are less volatile compared to equity schemes and the cost of investing in an ETF is also less compared to investing in other schemes. Usually, the annual management fees for equity ETFs are at around 1-1.5% against over 2-2.5% in other schemes, depending on the total corpus.? If an investor wants to start investing in ETF, he only needs trading and demat accounts.
Overall, there are around 16 schemes traded on the National Stock Exchange (NSE) which constitutes nine equity ETFs and six gold ETFs. The remaining one is liquid ETF.
Recently, Benchmark Mutual Fund had launched Hang Seng BeES, India?s first-ever open-ended international ETF. The scheme will track China?s Hang Seng Index and will provide Indian investors exposure to the markets in China and thereby diversify their portfolio further.
Religare Mutual Fund has recently launched Religare gold ETF. Saurabh Nanavati, chief executive officer of Religare Mutual Fund, said during the launch, ?Gold is a necessary allocation to everybody?s portfolio ?? to the tune of 5-10% of their portfolios. Gold is a hedge against inflation and falling dollar. Emerging markets like India are facing inflationary issues due to ample liquidity created by global central banks. As regards the dollar, over a longer period with India and China GDP growth being in excess of 6%+ and US growth not expected to cross 2% in the near future, the dollar is bound to depreciate sharply over the next five years against emerging market currencies. Gold will, therefore, act as an insurance to retail investor portfolios.?