Exchange traded funds: ETF space gaining traction; NSE witnesses 100th listing

Exchange traded funds (ETFs) are getting a lot of attention from investors, with the leading stock exchange NSE witnessing listing of 100th such instruments. ETFs began their journey in India way back in 2002, when the first ETF by Nippon India Mutual Fund (erstwhile Benchmark Asset Management Company Ltd) was launched in India on the Nifty 50 Index.

The ETF was listed on the NSE on January 8, 2002 and the day one witnessed trading of Rs 1.30 crore, the bourse said in a statement on Monday.

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The journey to listing of the 100th ETF on the NSE took more than 19 years. Last one-year period has seen a lot of activity in the ETF space, with 21 ETFs getting listed on the NSE.

The assets under management of ETFs in India stood at Rs 3.16 lakh crore at the end of May 2021, more than 13.8 times growth in five years as compared to Rs 23,000 crore as of end-April 2016.

"India is a retail investor driven market. Channelising household savings into financial products which aids capital formation has always been one of our key objectives," Vikram Limaye, MD and CEO, NSE, said.

According to him, exchange traded funds are simple and low-cost investment option, particularly for small and first-time investors to take exposure to equity markets through participation on the stock exchanges.

Apart from retail investors, participation of provident or pension funds in equity markets through ETFs and Government of India using ETFs for their disinvestment programmes have given a big boost to the ETF industry in India, he added.

The exchange said that Nifty 50 Index continues to be the most post popular index as 17 asset management companies (AMCs) have launched 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 healthcare and 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.

In addition, ETFs are also available on gold and there are 11 ETFs with the underlying assets as yellow metal. Last financial year witnessed a record participation, with more than 12 lakh investors transacting in gold ETFs.

Further, debt oriented ETFs has assets under management of about Rs 40,230 crore and 13 ETFs are listed on the NSE with underlying investments in government securities -- central government as well as state government, corporate bonds and money market instruments.

There are 60 ETFs available under the securities lending and borrowing scheme, where investors can lend or borrow the ETF units. Cross margin to index-based exchange-traded funds benefit is also available on some of the ETFs like the facility available in the equity stocks, index futures and stock futures, the exchange said.

To encourage participation in equity ETFs, government has also reduced securities transaction tax (STT) to just 0.001 per cent 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 crore in the current financial year. The number of investors transacting in ETFs has also gone up by 96 per cent from 20.4 lakh in FY20 to 40.1 lakhs in FY21. The first three months of the ongoing fiscal has seen transactions by more than 22 lakh investors.