ETF market can reach $5 bn: Divestment Secy Khan
Mumbai: The nascent exchange traded funds (ETF) has the potential to touch USD 5 billion (around Rs 26,000 crore) even if a small number of demat account-holders invest in these kinds of instrument, disinvestment secretary MH Khan said here on Monday.
"The ETF has grown by over 70 times from Rs 7 crore to Rs 540 crore in past 10 years in the country. The debate is around the optimal size for ETF in the present scenario.
"Even if a few investors respond to an ETF offer valued between Rs 10,000 and 50,000 per unit, then it is possible to collect ETF funds to the extent of USD 5 billion," Khan told a workshop on ETF organised by the BSE and Department of Disinvestment this evening.
ETFs have to be grounded in equity culture and distributed through a proper channel to touch all 2 crore demat account holders, he added.
In ETFs, the entire corpus is invested in a basket of securities, such as equity shares and is managed passively. They track the benchmark indices passively and fund managers don't manage these funds.
Referring to increase in the penetration of ETFs, Khan said distribution of these kinds of funds by using technology is critical to reach out to more number of investors, especially in rural areas.
As there are around 2 crore demat account-holders in the country, ETFs have high potential, he added.
Interim BSE chief executive Ashishkumar Chauhan said, a new ETF can be launched on the existing BSE PSU Index which can be subscribed to by private sector banks, PSU banks, insurance companies as well as other institutions in addition to the retail investors.
"This can potentially help generate up to Rs 1 lakh crore in PSU ETFs put together. We believe that the share of ETF products will increase significantly following the trend in developed markets."
Currently, ETFs constitute very small part of the total mutual fund industry despite the low risk attached to this product.