Runners up @ pravartana - The Financial product competition

1. Team – Numero Uno
 Trimurti Gupta
 Vikas Sonwane
 Pulkit Giria
The Emerging India Oil Exchange Traded Fund

2. Introduction
It was mid December 2014 when the crude oil started hitting 5 year lows and by month
end it breached $50 levels. These levels provided an attractive investment opportunity for a long
term investor with an investment horizon of 3-5 years. But how can a professional or retail
investor get a long term exposure for this commodity? For an Indian investor to get such an
exposure, the financial products available are energy stocks or commodity derivatives. The
performance of energy stocks is partially based on management efficiency. The commodity
derivatives have a lot of risk involved and are not suitable for long term investments. So there is
no one financial product in the Indian financial market which could give a direct sole exposure to
Crude oil for long term.
Background
Crude Oil or “Black Gold” as it is called is the one of the most important physical
commodities in the global economy. India ranks among the top 10 largest oil-consuming
countries. Oil accounts for about 30 per cent of India's total energy consumption. The country's
total oil consumption is about 2.2 million barrels per day. India imports about 70 per cent of its
total oil consumption and it makes no exports. The demand for crude oil in the longer run is
going to be robust owing to growing energy needs.
The Oil Exchange Traded Fund (OETF)
At the heart of our offering, the Oil Exchange traded fund is a basic premise - that in
India there is no structured long term financial product which offers investors (professional or
retail investors otherwise) an opportunity to benefit from the appreciation of the commodity
Crude oil prices in the long run i.e. a financial product that tracks the performance of crude oil
index.
The Oil exchange trade fund is a domestic exchange traded security designed to track the
daily prices movements of MCX crude oil index. The Asset Management Company will issue
shares that may be purchased and sold on the National Stock Exchange.
Objective
The investment objective of the OETF is for the daily changes in percentage terms of its
shares' net asset value ("NAV") to reflect the daily changes in percentage terms of the spot prices
of the MCX crude oil index as measured by the daily changes in price of MCX crude oil contract
less the management expenses. The benchmark for the fund is the near month crude oil futures
traded on MCX.
Investment
The OETF would invest primarily in listed crude oil futures contracts and other oil related
futures contracts and may invest in forwards and swap contracts. The collateralization would be

3. by cash and cash equivalents and Indian government securities with remaining maturities of two
years or less.
Value Proposition & Benefits
 The OETF will offer commodity exposure without using a commodity futures account
 OETF will provide "equity-like" feature including, intra-day pricing, and market, limit,
and stop orders
 The AMC will provide portfolio holdings, market price, net asset value ("NAV") and
total net assets ("TNA") on day-to-day basis
 Lower Expenses in comparison to traditional mutual funds as these would be passively
managed funds
 Daily disclosure of the information
 Increased flexibility
Fact Sheet
Type of Fund Non-Equity Exchange Traded fund Linked to Crude Oil
Investment Investment in Underlying Crude Oil
Country of Investment India
Taxation Treatment Capital Gains
Benchmark Index MCX Crude Oil Index
Fund Inception Launched around March 2015
Pricing per unit Approximately 10% price of 1 Barrel of Crude Oil
Minimum Lot(Exchange) One Unit/Share
Minimum Lot (Directly
with fund as per creation
unit)
1000 units
Expense Ratio 1.5% Annualized
Investment rationale
Energy is a cyclical business. Historically all the seven times crude oil has gone down it
rebounds 12-to-18 months down the line. So to capitalize these fluctuations of crude oil, an
investor can invest in OETF. As of today the Crude oil price is at its 5 year low, so the investor
with the bullish view on crude oil for the coming 2 year with an expected price target of $75 can
invest in OETF resulting in a profit in access of 40%.
Risks Involved
 Investment Risk: - Commodity trading is highly speculative. Commodity prices and
futures generally are volatile and are not suitable for all investors. OETF will be
speculative and will involve a high degree of risk. The fund is likely to be volatile and
could suffer from periods of prolonged decline in value. An investor may lose all or
substantially all of an investment in the fund. Also a fund that focuses on a single sector
generally experiences greater volatility.

4.  Operational risk: - The Fund is not operated in a fashion such that its NAV will reflect
the percentage change of the price of any particular futures contract as measured over a
time period greater than one day. It is not the intent to operate the Fund in a fashion such
that it’s per share NAV will equal, in dollar terms, the spot price of any particular futures
contract.
 Market Influencing Factors: -
o OPEC output and supply
o Terrorism, Weather/storms, War and any other unforeseen geopolitical factors
that causes supply disruptions
o Global demand particularly from emerging nations.
o Dollar fluctuations.
o DOE / API imports and stocks
o Refinery fires & funds buying
Target Customers
Our target customers will be both Professional/Retail investors and Institutional investors. The
push for expanding the universe of commodity exchange-traded funds comes, for the most part,
from professional investors and active traders. Nevertheless, long-term investors will find that
the long term commodity based ETFs find a place in their portfolios when they have an
opportunity for occasional large-size purchases of securities. Thus following will the profile of
our target investors.
 Investors with good deal of financial knowledge
 High risk appetite for volatile commodity future
Market Potential
The average open interest in MCX Crude oil is around 250000 lots, amounting to ₹7500
crore. So investors are pouring in around $1.22 billion on Indian oil contracts. The Benchmark
Gold exchange traded fund has around ₹2000 crores assets under management. Keeping these
values as our anchor we find an investment appetite of around ₹1050 crore (15% of value traded
on MCX) in the first year itself. Resulting in annualized fees of at least ₹15 crores to the Asset
Management Company.