SBI Mutual Funds launches ETF on Nifty India Consumption Index

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The new service charges will come into effect from July 1, 2021, SBI mentioned on its website

India’s consumer spending is expected to grow at around 9.1 percent in 2021, a recent report by Fitch solutions mentioned. The anticipated forecast for real household spending for 2021 stands at Rs 73.3 trillion, only marginally lower than the Rs 74 trillion figure it hit in 2019. 

Perhaps acknowledging this value generation and the strong revival of consumer spending and demand in the years to come, SBI (State Bank of India) Mutual Fund recently launched an ETF (Exchange Traded Fund) tracking the Nifty India Consumption Index. With the NFO (New Fund Offer) running from June 30 to July 14, here are a few key things you need to know about the ETF. 

SBI Consumption ETF 

Passive investing is increasingly catching on in India, with 2020 being a landmark year for passive funds and ETFs. The steep growth, particularly in the ETF sector, can be gauged from the very fact that in January 2020, the total AUM (Assets Under Management) for ETFs (including gold), stood at around Rs 1,84,000 crore. This figure rose almost 71 percent to Rs 3,16,289 crore, as of May 2021. 

In fact, ETFs have been slowly gaining a wider industry base, with their share rising from 6 percent to 7 percent between October 2019 and 2020. 

Said Vinay Tonse, MD and CEO, SBI Funds Management, “We believe passive funds are gaining traction around the world and in India as well where investors would like to invest in line with an index. Investments in ETFs are beneficial for those looking to get exposure to a broad range of asset classes at a lower cost. With the addition of SBI ETF Consumption, we continue to augment our portfolio of offerings in the passive investment space, in addition to our actively managed funds. I believe SBI ETF Consumption is a good opportunity as India’s potential for domestic consumption is very large and continues to be a strong growth story.”

Notably, ETFs are popular investment vehicles, owing to their low cost and simplicity. The SBI Consumption fund has set a minimum amount of Rs 5,000 during the NFO period and thereafter, will be accepting funds in multiples of Re.1  Reports also suggest that the fund will be managed by Harsh Sethi, who, in his 13 years of experience, has prior expertise in managing SBI ETF (IT) and SBI ETF (Private Banks). 

The scheme is ideal for high-risk investors who are looking with the objective of long-term capital appreciation. With a minimum of 95 percent and a maximum of 100 percent investments in securities falling under the Nifty India Consumption Index, the scheme will also allot around 5 percent each in equity derivatives and money market instruments. 

Independent financial strategist Nema Chhaya Buch also advocates for ETFs, especially for amateurs. “ETFs are low-cost investment options that are in line with market movements. Hence, novice investors can opt for ETFs to start off their market journey,” she said. 

What is the Nifty India Consumption Index?

Launched in 2011, The index is a comprehensive reflection of the domestic consumption sector, highlighting companies from diverse fields such as pharmaceuticals, hotels, consumer non-durables, media, and more. It comprises 30 companies listed on the NSE (National Stock Exchange). 

Weightage-wise, consumer goods make up for more than half the index at 58.09 percent. Automobiles (19.62 percent) follow closely with Consumer Services(8.44 percent) and Telecom(8.03 percent). It comes as no surprise, then, that HUL (Hindustan Unilever) forms the biggest constituent of this index, with 10.13 percent, trailed by ITC(9.93 percent) and Asian Paints (8.73 percent), among others. 

The index has had a YTD (Yield-to-date) of 7.97 percent and a return generation of 11.45 percent over the last 5 years. However, the index’s performance has been wobbly at best, with 19 percent in 2020 and 45 percent in 2017. In the remaining intervening years between 2016 and 2020, the returns have been in the red. 

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