SBI Exchange Traded Fund becomes country’s largest mutual fund scheme..

This is a fascinating development and comes sooner than expected. In a recent post, one argued that time for passive/exchange traded funds is about to come.

Now, one sees SBI ETF Nifty 50 overtake HDFC Equity to  become the largest equity fund. The fund though has not grown due to retail money but due to changes in EPFO rules which allows larger equity exposure.

SBI ETF Nifty 50, an exchange traded fund, has nudged past HDFC Equity to become the largest equity scheme in the country, a position the latter had held for more than three years. SBI ETF Nifty has assets worth Rs 19,377 crore compared with Rs 19,093 crore managed by HDFC Equity, data from Value Research shows.

Managed by India’s highest-paid fund manager Prashant Jain, HDFC Equity has been around for more than 22 years and has consistently featured among the top five largest equity schemes in the past decade. SBI ETF Nifty 50, on the other hand, was launched less than two years ago, making it perhaps the fastest growing equity fund in the history of the Indian fund industry.

SBI ETF has benefited from inflows from Employees’ Provident Fund Organisation (EPFO) which has been steadily increasing its allocation to equities. It has also got significant money from a clutch of exempt provident funds, said sources.

“Change in EPFO regulation as well as investors’ preference towards passive funds has played a key role in the surge in ETFs as an asset class. While the EPFO remains a major contributor in our ETFs, we have received significant inflows from insurance and pension funds, exempted PF Trusts, banks and financial Institutions, high net worth individuals and family offices,” said D P Singh, executive director and CMO, SBI MF.

Last month, retirement fund body EPFO gave its nod to hike the investment limit in ETFs to 15 per cent from 10 per cent. This is expected to bring in an incremental Rs 18,000-20,000 crore into equities this financial year – and consequently boost SBI ETF Nifty 50’s asset base even further.

Given it is EPFO, the funds have flown mainly to government sponsored mutual funds like SBI:

“The EPFO will prefer to park its money with government-owned entities such as SBI MF, at least in the initial stages. Besides there is no point in putting the corpus in ETFs of different fund houses as the underlying risk remains the same,” said Manoj Nagpal, CEO, Outlook Asia Capital.

Hmm..

Interesting space to watch…