Hype about ETFs hides a shocking fact

Trading volumes and turnover of equity exchange traded funds (ETFs) continue to be pathetic, in sharp contrast to the rash of ETFs that fund companies are launching

Exchange traded funds (ETFs) are coming by the dozens to the market. After a spate of gold ETFs and even a specialised index ETF by Motilal Oswal Mutual Fund, Benchmark Mutual Fund is ambitiously launching six ETFs over and above its bouquet of eight. These are IT BeES, FMCG BeES, SERVICES BeES, ENERGY BeES, PHARMA BeES, and REALTY BeES. The benchmark indices of these schemes would be CNX IT Index, CNX FMCG Index, CNX Services Sector Index, CNX Energy Index, CNX Pharma Index and CNX Realty Index respectively.

Currently there are 10 equity ETFs listed on the National Stock Exchange (NSE) and 12 on the BSE (Bombay Stock Exchange) while seven gold ETFs are traded on both NSE and BSE. 

Half a decade after ETFs became a rage in international markets, they are becoming more and more popular in India. But the question is among whom? While fund companies are launching more and more ETFs, the investing public continues to ignore this product category. A cursory glance at the volumes of ETFs listed on the NSE is a testimony to this fact.

On Tuesday (20th July), the total traded quantity of 10 equity ETFs stood at 1,67,854 units with a total turnover of just Rs5.24 crore on the NSE. The ETFs launched by Benchmark Mutual Fund -'NIFTYBEES' and 'JUNIORBEES' - were the two schemes which together contributed Rs5.08 crore of this turnover. HDFC Mutual Fund and ICICI Prudential Mutual Fund have also launched their gold ETFs.

The low trading volumes were reflected in the bid ask spread. The difference between the bid price and the ask price of Reliance Banking Exchange Traded Fund (ETF) - 'RELBANK' was Rs14 with bid price or buy price at Rs947 and sell price at Rs961.

Similarly 'PSUBNKBEES' had a spread of Rs5 with bid price at Rs388 and sell price of Rs393 on a turnover of just Rs40,000. At 2.50pm (20th July) on the NSE, UTI Mutual Fund's 'UTISUNDER' recorded only one trade worth Rs1,000. In the event of market volatility the difference between this spread will be even more. There is a direct co-relation between the spread and volumes. The lower the volumes the higher will be the spread (difference between selling price and buying price). Just as a matter of comparison, Nifty Index Futures trades at a spread of 10-20 paise on a price of over Rs5,400. In the options market, the liquidity and trading volumes are so high that the price difference is just about 30 paise.

The huge gap in bid ask prices was also visible in gold ETFs. For instance, the 'RELIGAREGO' order book had a buy price of Rs1,816.50 and sell price of Rs1,835, a difference of Rs18.50 with turnover of just Rs2.22 lakh. The assets under management (AUM) of all gold ETFs put together were marginally higher at Rs1,939 crore as on June 2010. The seven gold ETFs recorded a turnover of Rs17.35 crore on the NSE on 20th July with a total of 97,395 contracts traded.

"Index funds and ETFs are the best way to invest for a long-term perspective but they are yet to catch up in India. That is the reason why volumes are poor. There is no retail penetration. The volumes will not be there if there's no retail participation. Institutional volume is slowly picking up. A few banks which are open to the idea of buying ETFs are already doing some transactions," said RL Narayanan, vice president - equity & institutional sales, Bonanza Portfolio Ltd.

The concept of ETFs is new among retail investors. Industry experts cite poor commission as the primary reason behind the low awareness of these products. ETFs are cheaper for investors. An ETF carries 1.50% annual recurring expense compared to 2.50% which an equity fund can charge to its scheme. ETFs also do not carry an exit load unlike other schemes. As on June 2010, the AUM of ETFs stood at just Rs1,135 crore (excluding gold ETFs).

"Benchmark Mutual Fund is usually into ETFs so people are more aware about it. The awareness about other big fund houses which have launched ETFs in the recent past is not much. Even if they are aware they like to buy traditional equity funds. Buying a traditional fund is convenient than buying an ETF at the moment," said Y Jawahar, VP - head, distribution, Mata Securities.



Sunil Date

6 years ago

It would have been better if the author had compared the performance of actively managed MF and Index funds/ETFs in the Indian context.

alok sah

6 years ago

ETF should always have market makers for the scheme , who should ensure that the spread between buy and sell offer should not be more than the tick size . and also the nav of ETF should be available on a real time basis online.

if this requirement is met than i am sure the volumes will go up, since ETF is a safer form of invesment compared to investing in individual stocks


6 years ago

"hides a shocking fact" was quite a misleading title , if traded volume is what you are referrring to , that data , that is in the public domain.

It would be ignorance on part of investor not to know this and cannot be looked as somebody hiding fact .

Hopefully more people would atleast look at what ETFs are with this "Hype" and appreciate its utility in their portfolio


6 years ago

Lack of awareness, complications in transactions as peerceived by small investors, no incentive for ifas ready to sell such products.

Insurance company admits to delayed payments to hospitals

Major public sector insurer admits that a few local offices have been delinquent, and a few TPAs have been slack in releasing insured amounts

For a long time, hospitals and doctors have argued that when it comes to payment of the cost incurred on medical procedures, insurance companies don't pay hospitals on time. A major public sector insurance company has admitted to these charges and confirms that some of its regional offices and a few Third Party Administrators (TPAs) may have made delayed payments to hospitals.

"We are addressing these issues. There have been some regional offices that are delinquent, resulting in slackness in payments, while some TPAs have been indifferent when it comes paying doctors on time," said M Ramadoss, managing director, New India Assurance.

Delayed payments have been a major issue with hospitals, who have been complaining that they have been getting their dues after nearly six to eight months. Hospitals have been blaming TPAs for these delays, saying that the intermediaries keep the float given by insurers and delay payments. Even insurers have complained that TPAs are not using these funds to settle patients' claims.

Generally, insurance companies maintain a float with a particular TPA for a period of 15 to 30 days for settling claims. When the float is exhausted, the TPA receives additional money from the insurance companies for settling claims.

However, a few private insurers whom we spoke to said that TPAs can't be wholly blamed for the current imbroglio, as payments to hospitals depend on the insurance company. "The TPAs are being slapped from both sides, they can't do much as the payments depend on us," an insurer told Moneylife, preferring anonymity. These insurers also feel that hospitals were over-charging customers.

Insurers who have done away with TPAs say that they are not satisfied with these middlemen in the process. "TPAs have not been able to live up to the service standards that had been expected from them when these administrators were introduced. This has led to various issues, including some doctors and hospitals refusing to work with them. For us, as an insurer, it would be better if we have our own team which can interact both with customers and hospitals directly, to ensure that our clients are getting prompt service. This will help us to address customer issues much faster," KG Krishnamoorthy Rao, Future Generali India's managing director and chief operating officer, had earlier told Moneylife.

However, Mr Ramadoss says that even hospitals need to be partially blamed. Most cashless claims are preauthorised for a certain coverage amount. Hospitals call the TPAs or insurer to confirm the go-ahead for the operation for the said amount. However, if there is any increase in cost, the hospital doesn't consult the TPA or insurer. So at the time of payment, the TPA or insurer is only able to pay the hospital the said amount and not the additional cost incurred. However, the remaining payment is given out after negotiations between the doctors and TPAs or insurer.

Fee charges and payments have been a topic of intense discussion between insurance companies and hospitals. In fact, in the middle of February, policyholders who were admitted to Mumbai hospitals were trapped in the midst of a raging battle between city-based doctors and TPAs, due to various doctors being unhappy with the low consultancy fees being allowed by a few TPAs for reimbursement, under a number of medical insurance plans.



samar mahapatra

6 years ago

Since long heath insurers are having an adversarial relationship with TPA,, thanks to inadequate supervisory role of the IRDA.Use of multiple TPAs and business rivalry has led un business like practice dealing with policy holders/hospitals.A good system brought from western market , has been given a bad name , by step motherly treatment to the beneficial system.We know, what it is dealing with giant insurance co by individuals.

ASCI upholds CERS complaint against ‘Sri Bhagwathy Madom Fitness Massage Oil’, ‘Fat Free Tablet’

The advertising self-regulatory body, ASCI, has upheld complaints against Sri Bhagwathy Madom Fitness Massage Oil and Fat Free Tablet advertisements, after receiving a complaint from CERS

The Advertising Standards Council of India (ASCI) has upheld a complaint from the Consumer Education and Research Society (CERS) against the advertisements of 'Sri Bhagwathy Madom Fitness Massage Oil' and 'Fat Free Tablet' published in various sections of the press.

In March 2010, CERS had complained to ASCI against the claims made in these advertisements. According to the advertisement, Fat Free Tablet is 'scientifically proven' to reduce excess fat and cholesterol, and by using 'Sri Bhagwathy Madom Fitness Massage Oil' one can get rid of loose fat, wrinkles, bulgings, swellings, dry skin, excess sweating and bad odour.

"'Use 'Fat Free Tablet' and 'Sri Bhagwathy Madom Fitness Massage Oil' together and see the magical result within one month'," the press advertisement claimed.

ASCI's Consumer Complaints Council (CCC) found the advertisement contravened Chapter 1.1 of its code. As per the code, 'Advertisements must be truthful. All descriptions, claims and comparisons which relate to matters of objectivity ascertainable facts should be capable of substantiation'.

ASCI has asked the advertiser to withdraw its advertisement. After considering the clinical data submitted by the advertiser, CCC has concluded that the claims mentioned in the advertisement are not substantiated adequately.


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