Reliance Mutual Funds has filed an offer document with SEBI for a new ETF – Reliance MSCI India Growth ETF.
The Reliance MSCI India Growth ETF will track the MSCI India Growth Index, which means that this particular ETF will hold stocks only from that index.
At least 90% of the Reliance ETF funds will be invested in the index stocks, and up to 10% in futures, options, bonds and other debt instruments.
There are 30 stocks in the MSCI India Growth Index, and here is the composition as on Aug 31st 2009.
| Company | Index Weight |
| Infosys | 13.77% |
| Reliance Industries | 13.69% |
| HDFC | 11.30% |
| HDFC Bank | 8.82% |
| L & T | 6.77% |
| BHEL | 5.89% |
| ITC | 5.48% |
| HLL | 4.92% |
| Jindal Steel and Power | 4.20% |
| Jaiprakash Associates | 2.66% |
| Kotak Mahindra Bank | 1.88% |
| Cipla | 1.87% |
| Reliance Capital | 1.86% |
| Axis Bank | 1.76% |
| Cairn India | 1.64% |
| DLF | 1.31% |
| United Spirits | 1.30% |
| Sun Pharma | 1.21% |
| GMR Infra | 1.13% |
| Idea Cellular | 1.09% |
| Hero Honda | 0.92% |
| Siemens India | 0.91% |
| Dr Reddy’s | 0.87% |
| ABB | 0.84% |
| United Phosphorus | 0.79% |
| Maruti Suzuki | 0.76% |
| Aditya Birla NUVO | 0.75% |
| Reliance Natural Resources | 0.61% |
| Power Grid Corporation of India | 0.54% |
| Glenmark Pharma | 0.47% |
To me, the name of this index suggested that there will be some high growth stocks in it, but as you can see – the index is dominated by large cap, blue chip stocks, which are known for their relative stability rather than growth.
Expense Ratio
Reliance estimates that it will have an expense ratio of 0.80% of weekly average net assets for up to Rs. 500 crores, and 0.70% above Rs. 500 crores.
Minimum Application
If you wish to apply for the NFO of this ETF, you will need to invest a minimum of Rs.5000. However this is not an IPO, so you shouldn’t expect any listing gains. You can easily buy this ETF from the stock exchange, like any other stock after it has listed also.
Investor Services
The draft offer document provides the following contact information for this Reliance ETF NFO:
Mr. Milind Nesarikar, Head – R&T Operations
Reliance Capital Asset Management Limited
Express Building, 4th Floor, 14, ‘E’ Road, Churchgate,
Opp. Churchgate Station, Mumbai 400 020.
Tel. 022 – 3041 4800, Fax. 022 – 3041 4899
Email: [email protected]
Risk Factors
Since this is an equity ETF, it faces all the risks that stocks face in general — like volatility of prices, no guarantee of capital preservation etc.
On top of that, since this is an ETF that trades on the stock exchange, if a liquid market is not developed for it, then you will run the risk of being unable to trade in it, or trade with high spreads.
One of the big benefits of an ETF over a mutual fund is that it trades all day long on a stock exchange. That only happens if a market is developed for that particular ETF. If a liquid market is not developed for this particular ETF, then you stand to lose that big benefit.
Passive Fund
The Reliance MSCI India Growth ETF is a passive fund which means that the fund manager doesn’t actively buy or sell the stocks. The fund buys and sells the stocks in the proportion of the underlying index and is passively managed.
Conclusion
These were some key features of the Reliance MSCI India Growth ETF NFO, and evaluating these features and risks should give you a better understanding of the NFO and help decide whether you should be invested in such a scheme or not.
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