Mumbai: Prudential ICICI Asset Management Company (PIAMC) has introduced SPIcE, India’s first exchange-traded fund (ETF) to track the Bombay Stock Exchange (BSE)-Sensex.

SPIcE is a hybrid product having features of both an open-ended mutual fund (such as diversification and lower transaction costs) as well as those of an exchange-listed security (intra-day trading and listing on the BSE or the Delhi Stock Exchange [DSE]).

SPIcE can be bought and sold like any equity share on the BSE terminal through a stockbroker. The minimum lot size is one unit of SPIcE; effectively, a retail investor can buy one SPIcE unit and hold the same in his Demat account just like any other security.

The price of one SPIcE unit will be equal to 1/100th of the Sensex value. For example, if the current Sensex is at 3100, the price of one SPIcE unit will be Rs 31. The scheme will be managed by Prudential ICICI and listed on both the BSE and the DSE.

Key advantages of SPIcE:

• Instant exposure to a well-diversified portfolio of 30 quality stocks forming part of the Sensex
• Buying and selling of SPIcE units on a real-time basis just like any other equity share
• Since once SPIcE unit is equal to 1/100th of the Sensex, the minimum investment for a retail investor is as low as Rs 31 (3100/100)
• The price of each unit of SPIcE would move in tandem with the Sensex, making the whole process extremely transparent No sales load, normal brokerage commissions and low management and sponsor fees apply

Key applications of SPIcE:

• Equitising cash
• Cash-flow management
• Diversifying sector exposure
• Shorting or hedging index exposure
• Arbitrage between SPIcE and basket trading and between SPIcE and index futures

An important feature of SPIcE, like most ETFs, is the creation and redemption process. While most investors will trade SPIcE units through their stockbrokers on the stock exchange, authorised participants (brokers, institutions) will be eligible to create or redeem SPIcE units directly with the fund by exchanging a basket of Sensex securities. Such a process helps in maintaining parity between the traded price of a SPIcE unit and its net asset value (NAV).

There are above 250 ETFs listed and traded across the world with assets under management of above $100 billion. In the US, the major ETFs include SPDRs (linked to S&P 500 Index), QQQs (linked to Nasdaq-100 index) and Diamonds (linked to DJIA). More than 60 per cent of the trading volume on American exchanges is in ETFs.

PIAMC is investment manager to the largest private sector mutual fund in India: the Prudential ICICI Mutual Fund. PIAMC enjoys the strong parentage of ICICI Bank, a well-known and trusted name in financial services in India, and Prudential plc, one of the UK’s largest players in the insurance and fund management business. PIAMC has 26 centres all over India to service investors and enjoys the trust of over 5.5 lakh investors. Its diverse product portfolio comprises debt, equity and balanced funds.