Exchange Traded Mutual Fund 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 Rs 6.4 trillion funds contributed by over six crore subscribers.

The retirement fund body is all set to invest around Rs 5,000 crore per annum in equity ETFs out of its total annual investible fund of around Rs 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 Rs 3,500 crore last fiscal, and therefore the industry interest in the entry of the fund-flushed EPFO.

The EPFO will start investing in ETFs from this month, beginning with an initial investment of Rs 1,000 crore, which by the end of the year will touch Rs 5,000 crore or 5 per cent of the Rs 1 trillion investible fund of the organisation.

The retail and HNI portion of the AUM rose 50 per cent from Rs 1,102 crore in March 2014 to Rs 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 Rs 92,730 crore as of June 30, including Rs 30,000 crore in equities, has applied for two equity ETFs with Sebi which include Nifty ETF and Sensex ETF.

Out of the total AUM of Rs 86,000 crore, SBI MF currently has Rs 26,000 crore in equities.Despite offering four equity ETFs, its AUM from this is only Rs 30 crore.It can be noted that permitting the EPFO to enter the ETF space in a phased manner, Union

During the current fiscal, the incremental deposits could be around Rs 1 trillion as the body has increased the monthly wage ceiling for coverage under its social security schemes to Rs 15,000 from Rs 6,500 last September.

Earlier, the EPFO, which has over 6 crore subscribers, has been investing primarily in state and central government securities.

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