Think before investing in India's Exchange Traded Index Funds

Index Funds are good. How about Exchange Traded Index Funds? They are good. That's what we are told and that's what I thought until I checked the volumes of the ETFs listed on NSE. To my horror and surprise I found that the volumes are miserably low and for some funds there were no trades at all. I use the stats from 6th Mar 2009 to drive home my point

Benchmark Mutual Fund-Nifty Junior Benchmark ETF -6257
Benchmark Mutual Fund-Nifty Benchmark ETF -76129
Benchmark Asset Management Company Pvt. Ltd. - Bank Index -1900
Reliance Mutual Fund -Banking Exchange Traded Fund (ETF) -236
Quantum Index Fund -Exchange Traded Fund (ETF) -104
Benchmark Mutual Fund - PSU Bank Benchmark Exchange -510
Traded Scheme
Kotak Mahindra Mutual Fund -0

From the stats you can clearly see that the volumes are pathetically low so its quite possible that you won't be able to sell when you want and at the prices you want since the spread between the bid and ask prices are high. Out of these funds only Nifty Benchmark Index seems to have decent volumes so that may be the only fund worth looking at.

I think the concept itself is very good but unless more people are aware of these funds and participate in them you are in real danger of getting stuck. You may not find buyers and you may get quotes far less than the market price. So think hard before investing in the ETFs.

RK