Edelweiss Asset Management Ltd has bagged the mandate for launching government’s maiden debt ETF which will hold public sector firm’s debt securities. Edelweiss beat other AMCs like Aditya Birla Sun Life AMC, Reliance Nippon Life Asset Management, SBI Funds Management and UTI Asset Management Company who were competing for the mandate.
In November 2018, Department of Investment and Public Asset Management (DIPAM) had invited asset management companies (AMCs) to submit bids for the same. Edelweiss is one of the smallest AMCs with quarterly average AUM of Rs 14,161 crore as on 30 September 2018.
Edelweiss AMC proposed lowest expense ratio of 0.0005% which means this debt ETF would have the lowest expense ratio in the industry. Owing to this, we could potentially see high preference by institutional investors towards this ETF provided the ETF has lower risk profile. We are yet to receive details regarding asset allocation, strategy and risk profile. The fund house will discuss the same with DIPAM.
This ETF will be instrumental in helping state-owned companies borrow money from the market for their business operations. The ETF will provide a platform for PSU/PSBs to come together to borrow money. An index is expected to be created out of the debt securities issued by this set of companies. This index would become the benchmark index for this debt ETF. If more securities are issued by the above set of companies, constituents of benchmark index would undergo a change. The structure of this debt ETF is still not clear, it could be either open-ended or close-ended. Further details are awaited from Edelweiss.
The debt ETF would allocate assets to various fixed income securities like corporate bonds, credit-linked note, debentures and promissory notes by participating set of CPSEs/PSBs/PSUs. The debt ETF may also include government securities.
We think this ETF will help in improving depth in the corporate bond market and provide a low-cost avenue for investors. It would be interesting to observe how the introduction of this ETF will impact activity in fixed income space.