New Delhi: Edelweiss Asset Management Ltd has won the mandate to manage India’s first exchange traded fund of public sector firms’ debt securities, two people aware of the matter said.

The other asset management companies (AMCs) in the fray were SBI Funds Management Pvt Ltd, Reliance Nippon Life Asset Management Ltd, Aditya Birla Sun Life AMC Ltd, and UTI Asset Management Co. Ltd. Edelweiss won despite being the smallest AMC in terms of asset under management (AUM), with an average AUM of 14,161 crore in the July-September quarter.

Edelweiss Asset Management declined to comment.

Earlier on Thursday, the five AMCs, including Edelweiss, had made presentations to the department of investment planning and asset management (Dipam) for the planned debt ETF.

“Edelweiss was ranked number three on their technical expertise after Aditya Birla and Reliance Nippon. However, Edelweiss won the mandate on account of offering a 5 bps expense ratio," said one of the persons mentioned above.

“During the presentations, the fund houses focused on bringing out a good product for the retail investor which will serve as an alternative to fixed deposits. The ministry focused on the lowest and technically sound bidder," said the second person quoted above. Both of them spoke on condition of anonymity.

The chief executive officer (CEO) of one of the bidders said they would not have liked to compromise on economics. “We had bid for the debt ETF but would not have liked to compromise on profits and growth," said the CEO on condition of anonymity.

The AMC would need to spend 20 crore on every 10,000 crore of AUM collected by the debt ETF for awareness and road shows, according to the government directive. An additional two basis points would also need to be spent on investor education as mandated by the Securities and Exchange Board of India.

Only AMCs with debt AUM of 15,000 crore in the July-September quarter were eligible to apply. Edelweiss would also need to balance the economics as it incurred a loss of 19 crore in FY18.

Following up on a Union Budget 2018 announcement, Dipam on 16 November had invited AMCs to set up a debt ETF. Bids were to be submitted by 17 December.

Edelweiss will need to work with the government and an external adviser for creating, launching and managing the debt fund, including additional tranches and fund offers.

“Bonds, promissory notes, credit notes and debentures issued by leveraged good quality companies would make up the debt ETF. The ETF would be benchmarked or mirror a new index," said a fund manager, who did not wish to be named.

The debt ETF would be made of AAA-rated bonds with defined maturity. The units of the fund then will be subscribed by investors, he added.

A second fund manager explained that the AMCs have suggested four-five structures.

“Both open-ended and close-ended have been proposed. Close-ended seems a more manageable structure. To create liquidity so that the ETF is easily tradable, market makers will be employed. The government is yet to finalize a structure," he said.

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