Sebi approves UTI’s first ETF

Nifty-based fund to follow Sensex-based Sunder scheme in July

B S Srinivasalu Reddy

Mumbai, May 27: The Securities and Exchange Board of India (Sebi) has given its nod to the Unit Trust of India (UTI) to launch the country’s first exchange traded fund (ETF) -- the Sensex UTI Notional Depository Scheme (Sunder). With this clearance, the UTI is expected to launch the scheme by the first week of July. The formal clearance will be announced this week.

If launched, UTI would join the select club of ETFs sponsors which have in thier kitty around $70 billion funds. An ETF is a fund that is benchmarked against an the underlying index, that is the The Stock Exchange, Mumbai (BSE) Sensex.

It acts as a surrogate to the index and has the investment in the Sensex stocks in the same proportion as that of the components of the Sensex. In effect, the ETFs is a passive fund and imparts liquidity to the existing market. The value of the fund would therefore be in line with the index on which it is structured.

Thus, the Sunder, is the first co-branded product of the UTI and the BSE that would track yield and performance of the Sensex. Meanwhile, UTI is in talks with the National Stock Exchange (NSE) for launching a similar scheme that would be based on its S&P CNX Nifty index, said UTI’s executive director BG Daga.

"Selection of the BSE Sensex for the first ETF scheme was possible as the BSE had approached the UTI with its proposal first". "The Sunder scheme has been cleared by us and a formal order will be issued in a couple of days," a Sebi official said adding, "this is almost like any other mutual fund scheme." The difference is that it tracks the Sensex stocks in exactly the same proportion and the investment has the same weightage.

The clearance has taken almost seven months, and therefore, the Sebi official says, "We do not feel any more restrictions are required to be imposed on this scheme."

UTI’s Daga said, "We have to see the Sebi clearance report and have to iron out the nitty gritties, if any, including the latest situation in the secondary market and its conduciveness for the launch, before formally launching the scheme. The whole process may take over a month." Initially, Sunder would be listed on the BSE, followed by listing on other stock exchanges for wider investor participation.
Internationally, there are five well-established ETFs with total assets worth over $70 billion. Four of these are based on the indices in the USA, while the fifth is based on the Hong Kong index, Hang Seng.

These ETFs are SPDR (based on S&P 500 index), Webs (MSCI), Diamonds (Dow Jones), Tracker Fund (Hang Seng Index), and Cubes or QQQ’s (based on Nasdaq 100 index). Of these SPDR, sponsored by AMEX, is the largest with over $25 billion in assets.