Exchange Traded Funds - ETFs

Let’s make easier to understand what is ETFS: -

Exchange Traded Fund (ETF) is essentially a mutual fund scheme that is Listed and traded on an exchange like stocks. Its performance tracks an index, a commodity or a basket of securities like an index fund. So Generally, ETFs are passively managed funds that have a low expense Ratio compared to actively managed funds. ETFs experience price changes And can be bought or sold throughout the trading day, which allows the Investors to take advantage of intraday price movements.

ETF can be bought or sold just by a call to the broker or through an internet

Trading Account. This provides investors the power to react quickly to Changes in the market and place limit order while trading. ETF can be held

in aDPaccount. Thus, with ETF, one can benefit both from the flexibility of a stock as well as diversification

ETF offers several advantages to investors: -

• Can easily be bought / sold like any other stock on the exchange through a number of terminals across the country.
• Can be bought / sold anytime during market hours at a price close to the actual NAV of  the Scheme.
• No separate form filling. Just a phone call to your broker or a click on the internet
• Ability to put limit orders
• Minimum investment required is one unit
• Enjoy flexibility of a stock and diversification of index fund
• Lower Expense Ratio
• Provides arbitrage between Futures and Cash Market

Types of ETFs available in India:-

Ø   Equity Index ETFs

Equity Index ETFs invest in stocks of underlying Index and attempt to

replicate the performance of the Index. For example Nifty BeES tracks the

Nifty Index. ETFs can also track foreign indices. E.g. Hang Seng BeES

tracks the Hang Seng index or MOSt Shares NASDAQ 100 which tracks

theNASDAQ100 index.

Commodity ETFs

Ø   Commodity ETFs

Commodity ETFs invest in the underlying commodity in the physical

form and hence mirror the performance of the same. There are a number

of Gold ETFs available to investors now. E.g. Axis Gold ETF, Gold BeEs,

HDFCGold ETF, ICICI Prudential Gold ETF etc.

Liquid ETFs

Ø   Liquid ETFs

Liquid ETFs are money market funds that invest in a basket of call

money, short term government securities and money market

instruments. It is an alternative to savings account that gives better

returns than the bank savings account with very little chance of negative

returns. Liquid BeES is the only Liquid ETF available in the market and

launched by Benchmark Mutual Fund.

ETFs v/s Stocks & Mutual Funds:

Particulars/Points of comparison	ETFs	Stocks	Mutual Funds
Real-time trading & pricing throughout market	Yes	Yes	No
Ability to put limit orders	Yes	Yes	No
Can be traded real-time	Yes	Yes	No
Is arbitrage between cash & future market possible	Yes	Yes	No
Is diversification possible with a single unit	Yes	No	yes
Returns at par with market/index	Yes	No	No
Intraday trading	Yes	yes	No
Exit Load	No	No	yes

Particulars ETFs Stocks Mutual Funds

This Article has been authored by Durgesh Joglekar he can be reached at:

joglekar.durgesh@gmail.com