In conversation with Chintan Haria, Head - Product Development and Strategy, ICICI Prudential AMC

In 2014, the ETF segment received a major push from the government when they chose the ETF route for disinvestment.

Q) ETFs are showing a faster pace of growth in recent years. What is your take on this?  

Over the past couple of years, digital adoption along with an increased level of investor awareness, low-cost schemes and product innovation has brought ETF under the spotlight. Today, investors have a variety of investment options such as the smart beta ETFs which can help generate better risk-adjusted returns along with plain vanilla benchmark indices or market capitalization based indices, sectoral ETFs etc.  

Q) What is the reason for investors, both retail and institutional getting attracted towards passively managed funds and especially ETFs?  

In 2014, the ETF segment received a major push from the government when they chose the ETF route for disinvestment. This move brought ETFs under the financial spotlight. In the last seven years, the disinvestment programme has been utilized by way of two ETFs - including the ICICI Prudential managed BHARAT 22 ETF. Each of these offerings witnessed record retail participation owing to attractive pricing incentives. Along with this, over the past few years, as awareness levels have improved and the equity market too has been buoyant, investors are increasingly opting to invest in equities be it through direct, or mutual funds which includes ETF. In this endeavour, ETFs tend to be the cheapest option to take exposure to equities, but in a passive manner. Here, the easy execution through digital platforms has aided investors to invest with just a few clicks.  

Q) In India how do you find their growth and what are the triggers that you see for their widespread acceptance going ahead?  

Innovative offerings in the form of various factor-based funds, exposure to various geographies and global indices through ETF or fund of fund routes in the days ahead will aid in garnering investor interest among different types of investors. Consequently, the positive investment experience of early investors will help proliferate the acceptance of ETFs among the masses.  

Q) What is your take on the liquidity of ETFs in India? How should an investor gauge the liquidity of an ETF?  

ETF liquidity is reasonably good particularly for our offering and some of the select players in the industry. At ICICI Prudential we have been managing passive funds with an AUM totalling around Rs 23,000 crore. Also, AMCs monitor liquidity closely for their set of products on a daily basis. They work along with authorized participants’/market makers to ensure that there is adequate liquidity for investors. The other factors one should consider while investing is tracking error and expense ratio. 

Q) What is your take on smart beta ETFs and how do you see their growth going ahead?  

In India, there is room for exponential growth for both active and passive funds as India’s mutual fund asset size as a percentage of GDP is just 12 per cent when compared to other emerging markets such as Brazil which is at 68 per cent.    

Over the past few years, there has been a proliferation of factor-based smart beta indices. Smart-beta funds through their rule-based approach attempt to provide better risk-adjusted returns than the traditional options such as an index fund. The factors based on which indices are available in India are data-centric parameters such as low volatility (lower variation in price), value (stocks relatively cheaper), quality (consistent growth irrespective of the business cycle), or momentum (following the trend). Our offerings such as the ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential Alpha Low Vol 30 ETF and ICICI Prudential NV20 ETF garnered encouraging investor interest and we believe this trend is likely to gather pace in the years ahead.