HDFC AMC takes a big step on passive funds, files for 9 ETFs with SEBI

AMC has applied for the following ETFs: Nifty Growth Sector 15, Nifty IT, Nifty Next 50, Nifty Private Bank, Nifty 100 Low Volatility 30, Nifty 100 Quality 30, Nifty 200 Momentum 30, HDFC NV20 and HDFC Nifty 100.

“The basic belief is that the active ones will outperform the inactive ones for the next three-five years. Also, financialization of assets in India is going to be massive, so there will be a need for all kinds of products. So, investors will also see some money in passives too,” said a person with direct knowledge of the matter, who declined to be identified.

Mutual fund houses have started focusing on passive investments, filing nine ETFs and two index funds in the last 15 days. The company last applied for a scheme in any category in December 2018.

Further, according to the SEBI website, from the beginning of 2020 till the end of August, HDFC has launched only three schemes, one was an index fund and the other was an ETF.

HDFC AMC so far offers four ETFs – gold, Nifty 50, Sensex, banking – with assets under management of Rs 4,045.25 crore as of September 30. The index funds on offer are – Nifty 50 Equal Weight, Nifty 50 and Sensex – with a total AUM of Rs 6,995.84 crore. It recently launched a new fund offering for a Developed World Index Fund of Funds (FOF).

Overall, the fund house manages assets of around Rs 4 lakh crore.

A lot of Indians have joined the investment bandwagon since the start of the Covid-19 pandemic. For those looking for simple solutions, passive funds offer the simplicity and level of returns that an index can match.

An index fund works like a mutual fund, in that a fund manager creates a portfolio that mimics an index, which could be Sensex or Nifty. There are more than 30 funds available in the market on Sensex and Nifty indices alone. However, the problem with index funds is that you can only buy them at the end of the day’s net asset value (NAV).

ETFs remove this limitation, as they can be purchased at any time during market trading hours. In addition, ETFs have to be listed on stock exchanges.

Today, ETFs are available in asset classes – Equity, Debt and Gold. Within equities, an investor has the option of choosing between a market capitalization-based ETF, a sector-based ETF or a smart beta ETF. Even though debt ETFs are at a very early stage in India, investors have a choice of liquid, gilt and PSU debt ETFs.