Mutual Funds
Index funds getting popular; Birla Sun Life plans to launch Nifty ETF

The fund will closely track the stocks represented in the S&P CNX Nifty; but ETF volumes have remained on the lower side

More and more fund companies are launching passive mutual funds, also called index funds. Among the passive fund products, after launching index funds which are supposed to replicate the underlying index with 'passive' management, fund houses are now trying their hands at Exchange Traded Funds (ETFs). Birla Sun Life Mutual Fund has recently filed a draft offer document with the Securities and Exchange Board of India (SEBI) to launch an open-ended 'Nifty exchange traded fund' (ETF). The fund will closely track the stocks represented in the S&P CNX Nifty.

Over the past decade, around 20 index funds have hit the market. Suddenly in the past few months, we have seen a slew of index fund launches by fund houses. Taurus Mutual Fund launched Taurus Index Fund; IDFC Mutual Fund introduced the passively-managed IDFC Nifty Fund in April 2010 and in May 2010, IDBI Asset Management Company (AMC) launched IDBI Nifty Index Fund. This was followed by ICICI Prudential Mutual Fund which floated a Nifty Junior Index Fund in June.

Unlike index funds, ETFs do not carry an entry or exit load. Just like stocks, ETFs can be bought and sold through the stock exchanges on a real-time basis. ETFs can be cost-effective for investors as they charge a miniscule fund management fee compared to index funds. There has been as much a rush to launch ETFs, as index funds. There are 24 ETFs available in the market. Birla Sun Life Nifty ETF will be the fifth Nifty ETF joining the ranks of four existing ETFs like Kotak Nifty ETF, Nifty BeES, UTI Sunder, Motilal Oswal MOSt Shares M50 ETF, which are all benchmarked against the S&P CNX Nifty. The S&P CNX Nifty constitutes of 50 stocks.

Among the four existing ETFs benchmarked against S&P Nifty, UTI Sunder launched in July 2003 has yielded 26% compounded annual growth rate (CAGR) return since its inception while its benchmark S&P Nifty has posted 24.98% during the same period. Nifty BeES was launched in January 2002 by Benchmark Mutual Fund. The fund has posted an NAV return of 21% since inception while its benchmark climbed 20.77% between the same period. As these two examples prove, ETFs closely track the underlying indices. But not all funds manage funds passively while pretending to. Moneylife had earlier reported on how index funds have deviated from their objective of passive investment. See here: (

Motilal Oswal MOSt Shares M50 ETF is a fundamentally weighted basket based on the S&P CNX Nifty Index and has its own pre-defined methodology with different weights for the same Nifty stocks.

Despite their lower cost, ETFs continue to be unpopular among investors. Only two products - the ETFs launched by Benchmark Mutual Fund (Nifty BeES and Nifty Junior BeES) contribute to 90% of the trading volume. The low trading volumes are reflected in the bid-ask spread too.

According to The  Association  of  Mutual  Funds  in  India (AMFI) data, the assets under management (AUM) of ETFs (including gold ETFs) stood at Rs3,504 crore as on July 2010. During July 2010, ETFs saw net inflows of Rs530 crore.


Smaller engineering companies may benefit from higher capex

An Edelweiss Securities survey points out that infrastructure companies have firmed up higher capex plans over the next two years. This will benefit smaller engineering companies

A strong sentimental boost amid robust economic growth is likely to translate into a sustained capex programme for India Inc over the next couple of years, says Edelweiss Securities. This expansion drive is likely to be led by infrastructure companies, who will account for 40% of the capex planned by India Inc. This may mean a windfall for small electrical, electronics and engineering companies, as the corporate giants loosen their purse-strings and place orders for equipment and machinery.

The survey conducted by Edelweiss among its coverage universe of around 200 companies finds that the overall capital expenditure of India Inc will go up by 24% for this fiscal year. Out of the total planned capex of around Rs5,60,000 crore, infrastructure (40%), power utilities (19%), metals and telecom (14% each) will account for a large chunk of the investments. The expansion thrust by infrastructure companies will result in a strong order-book for engineering companies, especially Cummins India, Siemens, Thermax, among others. Some of the major companies to have firmed up big-ticket expansion plans include Bharat Heavy Electricals Ltd (BHEL), Larsen & Toubro (L&T), Gujarat State Petronet Ltd (GSPL), Reliance Industries Ltd (RIL), National Thermal Power Corporation (NTPC), GVK Infra and GMR Infra among others.

Vikas Khemani, executive VP & head - Institutional Equities of Edelweiss Capital pointed out that the only bottleneck to the capex programme of these infrastructure companies remains from the pending government clearances in terms of land acquisitions, environmental approvals etc. The recent delay in execution of some projects was only due to this factor.

Analysis by Edelweiss suggests that only 10% of the companies surveyed are apprehensive of meeting their guidance or expect to incur a lower capex in FY11 and FY12. Almost 90% are confident of either maintaining or exceeding their capex programme target.

Interestingly, a whopping 75% of companies in the survey are incurring capex based on growth as the key agenda. Edelweiss states, "The balance expenditure is more due to routine maintenance capex led by the media sector, all consumer based industries like FMCG, retail and auto are also investing for growth as they believe consumer demand is making a comeback."
Commenting on the impact of a rising interest rate scenario on companies' investment plans, Edelweiss states that even if the cost of credit jumps 50-100 bps from the current level, credit growth and, hence, investment demand will continue to gather demand. "If the underlying demand in the economy and the business expectations of future demand are robust enough, the rising cost of credit could be absorbed by corporates fairly easily because they enjoy the pricing power during times of robust demand. In fact, at such a stage, rising cost of credit is actually a testament to the robust economic recovery and is reflected in rising credit growth," says Edelweiss.



Shibaji Dash

6 years ago

A very useful tip for any retail investor . Thank you so much.

United Stock Exchange of India defers launch

Mumbai: United Stock Exchange of India (USE) today said that it has postponed its launch scheduled for tomorrow.

"Due to unavoidable circumstances the launch scheduled for Tuesday, 31st August, has been postponed. The new launch date is scheduled to be in September and will be announced shortly," USE said in a statement here.

The operations of the USE was to be inaugurated by finance minister Pranab Mukherjee at the BSE with operations in all four currency pairs currently allowed by the Securities and Exchange Board of India (SEBI) - dollar-rupee, euro-rupee, yen-rupee and pound-rupee.


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