One of the most popular financial innovations this side of the 21st century has certainly been the Exchange Traded Fund. More popularly known as ETF, it has also been the fastest growing. Estimates put the growth of ETFs globally at an impressive 34% per annum over a ten year period. What more, even the assets under management (AUM) is a whopping US$ 1.5 trillion. For the uninitiated, an ETF is nothing but an asset class whose price is linked to the price of an index, a commodity or a basket of assets. It can be called pretty much similar to an index fund in its composition but with an important difference. The difference being that unlike an index fund, an ETF trades like a stock on the exchange. Thus, it can be called as more liquid.

Clearly, with these many advantages, it hasn't taken long for the Government of India to cash in on the popularity of ETFs. As per reports, it is into the last lap of launching an ETF that will track a basket of 20 of the most profitable PSUs in the country. The fund, whose size is estimated to be as big as Rs 300 bn, will aid the Government in its disinvestment programme. How it will work is when price of the ETF turns attractive, the Government can sell some of its holdings in the fund. Not a bad idea indeed as it will save the Government the effort of going in for piecemeal disinvestments we believe.