If you wish to buy and sell mutual fund units during the trading hours of stock exchanges, there are Exchange Traded Funds (ETFs) that exist as an alternative investment option for investors. ETFs are listed and traded on stock exchanges like stocks and typically track a specific index. The first ETF was launched on January 8, 2002 by Nippon India Mutual fund (erstwhile Benchmark Asset Management Company Ltd) with the Nifty 50 Index as the benchmark.
As per NSE, 100 ETFs have been listed so far, with 21 ETFs getting listed on NSE in the last one year. The assets under management of ETFs in India are now at Rs. 3.16 lakh crore (end of May 2021), witnessing more than 13.8 times increase in five years, as compared to Rs 23,000 crore (end of April 2016).
ETF is a sort of variant of a mutual fund and tracks a specific index. The units in an ETF can be bought or sold only on a stock exchange anytime during the trading hours. ETFs are low-cost investments and allow one to take exposure to several stocks of the same index at one time. They come in various forms and typically track different indexes and sectors.
And not just equities, there are gold ETF and even international ETF’s listed on the stock exchanges.
The Nifty 50 Index continues to be the most popular index and 17 asset management companies (AMCs) have launched an ETF on this index. The other popular equity indices on which AMCs have launched ETFs include Nifty Bank Index and Nifty Next 50 index.
With the increasing popularity of ETFs and acceptances of passive investment options by investors, AMCs are now seeing an increasing traction and have been launching ETFs on different themes such as sectoral ETFs like Healthcare & Consumption, strategy ETFs on indices such as Nifty50 Value 20 index, Nifty 100 Low Volatility 30 Index, Nifty Alpha Low-Volatility 30 Index, and Nifty 200 Quality 30 Index, etc.
ETFs are also available on Gold. There are 11 ETFs with the underlying assets as Gold. Last financial year witnessed a record participation, with more than 12 lakh investors transacting in Gold ETFs. The Assets under management in Gold ETFs has touched Rs. 16,624 crores; 2.5 times increase in the last 5 years.
Debt oriented ETFs in India have assets under management of about Rs 40,230 crores and 13 ETFs are listed on NSE with underlying investments in Government securities – Central Government as well as State Government, Corporate Bonds and money market instruments.
Motilal Oswal Nasdaq 100 ETF tracks the performance of the NASDAQ-100 Index, giving international exposure to your portfolio. The Nippon India ETF Hang Seng BEES tracks the Hang Seng Index by investing in the Securities in the same proportion as in the index.
The most popular corporate bond ETFs are on the Bharat Bond Index series with assets under management of about Rs. 34,000 crores. The ETFs launched on Bharat Bond index had many firsts to its credit – First ETFs with underlying as the public sector enterprises corporate bonds and First Target maturity ETFs.
To encourage participation in equity ETFs, Government of India has also reduced securities transaction tax (STT) to just 0.001% applicable only during selling of the units. Further, STT is not applicable to the non-equity-oriented ETFs.
The average daily turnover of ETFs on NSE stood at around Rs. 265 crores in the current financial year. The number of investors transacting in ETFs has also gone up by 96% from 20.4 lakhs in FY20 to 40.1 lakhs in FY21. The first 3 months of FY22 has already seen transactions by more than 22 lakh investors.