MF houses expect EPFO entry to boost equity ETF space

Mutual fund houses are bullish about the phased entry of the EPFO into exchange traded equity funds from this month, as they believe it will boost investors sentiment.The Employees Provident Fund Organisation (EPFO), which is the second largest institutional investor into Indian equities after lIC, sits over around `6.4 trillion funds contributed by over six crore subscribers.

The retirement fund body is all set to invest around Rs5,000 crore per annum in equity ETFs out of its total annual investible fund of around `1 trillion, provided the industry meets certain conditions. The equity ETFs market is a nascent one in the country with its AUM being a paltry `3,500 crore last fiscal, and therefore the industry interest in the entry of the fund-flushed EPFO.

The EPFO wants the commission to be reduced to 0.10 per cent from the existing fee structure that ranges from 0.20 to 1.20 per cent now. The fund also wants the tracking error to be minimal to ensure that the investment gets the best returns, an EPFO official said.“So far, we have already held two rounds of meetings with Sebi on these issues,” the EPFO official added. The EPFO will start investing in ETFs from this month, beginning with an initial investment of `1,000 crore, which by the end of the year will touch `5,000 crore or 5 per cent of the `1 trillion investible fund of the organisation. When contacted, UTI AMC group president for sales and marketing Suraj Koeley told PTI that ‘reducing our expense ratio to 0.10 per cent should not be any problem for us as we will be getting money in bulk from the EPFO which will help raise investor sentiment’.

“Unlike other mutual funds, equity ETFs are passive funds and hence we can ensure minimal tracking error involved into it,” he added.The retail and HNI portion of the AUM rose 50 per cent from `1,102 crore in March 2014 to `1,656 crore in March 2015 on the NSE platform, according to the data from the largest bourse. The AUM of equity ETFs on the BSE could not be ascertained immediately. Some of the fund houses with equity ETF offerings include Reliance, SBI, Axis, Kotak, IIFl and Goldman Sachs.

UTI AMC, with a total AUM of `92,730 crore as of June 30, including Rs30,000 crore in equities, has applied for two equity ETFs with Sebi which include Nifty ETF and Sensex ETF. Out of the total AUM of ` 86,000 crore, SBI MF currently has Rs26,000 crore in equities. Despite offering four equity ETFs, its AUM from this is only Rs30 crore. The fund house is all set to launch a Nifty ETF shortly.

“Besides the EPFO, we are also waiting for more such pension funds to come in from other sectors as it will give a boost to the equity ETF market,” SBI Mutual Fund Managing Director and Chief Executive Dinesh Kumar Khara told PTI. “We will be launching Nifty ETF shortly,” he added.