Mutual Funds

Your Fund Portfolio

Dhuraivel Gunasekaran | Updated on July 14, 2019 Published on July 14, 2019

I have been reading BusinessLine for the last nine years and liked various articles published in the Monday edition every week.

Please provide answers to my following queries:

1) Which Sensex ETF and Nifty ETF have maximum liquidity, that is,. traded almost daily?

2) In which gold ETF should I invest, which is traded almost daily?

3) Tell me other equity-related ETFs that are suitable for investment and traded almost daily.

- Marchand


Exchange traded funds (ETFs) are passively managed mutual funds traded on the BSE and the NSE, like other shares. An ETF simply copies an index and endeavours to accurately reflect its performance. Through demat accounts, investors can buy and sell ETF units at the prevailing market prices during market hours.

While investors in the developed markets are fond of parking money in ETFs, the ETFs in India have not yet caught the fancy of investors.

However, the recent period witnessed increased interest in India in index funds and ETFs, thanks to the underperformance of the actively-managed large-cap equity funds as against their respective benchmarks such as Nifty 50 TRI and Sensex 30 TRI.

The narrow rally in the very few large-cap stocks have resulted in the diversified active large-cap funds underperforming the Nifty 50 and Sensex 30 indices.

More options

Currently, in India, you have a wide choice of ETFs based on the border indices, including Sensex, Nifty 50, Nifty next 50, Nifty 100 and Nifty Midcap 150.

Sector ETFs (banks and public sector banks), thematic (Bharat 22, CPSE, consumption and infrastructure), strategic ETFs (dividend opportunities) and smart beta ETFs (Nifty50 value 20 and Nifty 100 Quality 30) are also part of offerings.

ETFs based on asset classes like gold, debt ETFs such as gilt and liquid ETFs and two international ETFs are also available for investors.

ETFs are cost-effective as they charge relatively lower expense ratio compared to the regular and direct plans of the actively managed equity funds.

For instance, the average expanse ratio charged by the ETFs tracking Nifty 50 as benchmark, as of June 2019, was only 0.08 per cent, while the regular and direct plans of the active large-cap equity funds were 2.3 and 1.3 per cent respectively.

Factors to consider

While investing in ETFs, you should look at the liquidity (the traded volume in the exchanges) and the tracking error (TE) of the ETFs.

You can get to know the daily traded volume in the ETFs by looking at the BSE and NSE websites. Higher liquidity helps you buy or sell units of ETFs at the desired price and quantity (lower the impact cost). Generally, ETFs with a larger investor base have higher liquidity on the exchange.

Apart from the returns, the efficacy of ETFs is measured through the TE, which measures how closely an ETF tracks its chosen index. In simple language, TE is the difference in returns between an ETF and its benchmark. ETFs with lower TE are preferred choices.

Coming to your first question, there are about 17 and 9 ETFs tracking Nifty 50 TRI and Sensex TRI as benchmark respectively. Of the Nifty 50 ETFs, R*Shares Nifty BeES has the highest daily average traded volume on NSE (over the last one year) of around ₹6 crore, followed by SBI Nifty 50 ETF and ICICI Pru Nifty ETF, having daily average volume of around ₹1 crore each.

The TE of these ETFs has been low at 0.02-0.03 per cent. The TE is calculated from the last one year NAV history.

In Sensex 30 ETF, HDFC Sensex ETF is the one having the highest daily average volume of about ₹55 lakh on the BSE. The ones mentioned are among the better Sensex and Nifty ETFs in the market.

On your second question, of the 12 gold ETFs, R*Shares Gold BeES, SBI Gold ETF and Kotak Gold ETF have seen traded with quite decent daily traded volume of ₹3.8 crore, ₹70 lakh and ₹40 lakh on the NSE respectively. Their TE has also been relatively low.

On the third question, in the thematic ETFs, R*Shares Bank BeES, Bharat 22 ETF and CPSE ETF are having the decent daily traded volume of ₹11 crore, ₹19 crore and ₹33 crore respectively. Their TE were 0.01, 0.05 and 0.13 per cent, respectively.

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