Govt seeks to raise Rs.5,000 cr through ETFs in fiscal 2014

Move a part of govt’s Rs.40,000 cr divestment plan; Goldman Sachs Asset Management named fund manager

  

India’s ETF industry is small, with gold-based ones being the most common. Photo: Norm Betts/Bloomberg

Updated: Wed, Apr 24 2013. 01 03 AM IST

Mumbai: The government plans to raise at least Rs.5,000 crore through exchange-traded funds (ETFs) as a part of its Rs.40,000 crore divestment plan in the current fiscal, three persons familiar with the plan said. Goldman Sachs Asset Management (India) Pvt. Ltd has been appointed as the fund manager for the ETFs, which will be based on stocks of state-run firms, they said.

ETFs, like stocks, are listed on exchanges. They are liquid, tradable during market hours, and are issued in a dematerialized form. Typically, ETFs do not have entry or exit loads when bought on exchanges.

These instruments, however, attract costs in the form of a bid and ask spread, and brokerage charges.

India’s ETF industry is small, with gold-based ones being the most common. According to the Association of Mutual Funds in India, at the end of March, the total assets under 38 domestic ETF schemes stood at Rs.13,124 crore, with equity-oriented ones contributing only Rs.1,476 crore.

According to the plan, an index based on the shares of central public sector units (PSUs) will first be created. Index schemes will be launched based on this.

Since January, BSE’s PSU index has underperformed the exchange’s benchmark index, the Sensex. The PSU index has lost 6.977% while the Sensex has lost 1.27%. The National Stock Exchange’s PSE (public sector enterprise) index has, however, done better. It has lost 0.56% since January, while the bourse’s Nifty index has lost 1.15%.

Goldman Sachs emerged as the winner of the mandate last week from among about half a dozen contenders in the mutual funds space.

Most of the ETFs in India are managed by Goldman Sachs Asset Management, with Goldman Sachs Nifty ETS (Rs.482.21 crore) and Goldman Sachs Liquid ETS (Rs.576.66 crore) being the two largest equity-oriented ETFs, according to Value Research India Pvt. Ltd, a New-Delhi based mutual funds tracker.

This is the first time the government will raise money through ETFs. Once launched, the PSU ETF will be the largest among all ETFs.

With Rs.3,377.04 crore assets under management, Goldman Sachs’ Gold ETF is the largest now.

  LALIT SHARMA

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