fp exchange traded funds
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EXCHANGE TRADED FUNDSExchange-Traded Fund (ETF), is a security that tracks
an index, a commodity or a basket of assets like an index
fund, but trades like a stock on an exchange, thus
experiencing price changes throughout the day as it is
bought and sold.More simpler definition :
ETFs are essentially mutual fund schemes or index funds thatare listed and traded on the exchange like stocks
Exchange Traded Funds (ETFs) have been in existence inIndia for quite some time now. Apart from Benchmark
AMC, which specializes in ETFs, there have been a couple
of ETFs from Prudential ICICI AMC and UTI AMC.
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EXCHANGE TRADED FUNDS
CONTINUED.
But so far ETFs have not enjoyed the kind of popularity thatthe conventional Mutual Funds enjoy.
One reason could be the lack of understanding of theconcept of ETF amongst the general investor.
Second, and probably the more important reason, is thatETFs by nature track a certain index (e.g. Nifty or theBankex). Hence, the returns one can expect from ETFs will beequal to the rise in the index. Whereas, India is a growing
market and hence offers huge opportunities in the non-indexshares too. Therefore, it is not difficult for an active fundmanager to beat the index and offer better returns. As suchETFs (and index-funds too, by that logic) have comparatively
negligible AUMs.
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FEATURES OF ETF
Priced continually and can be bought or sold through out thetrading day.
Trading as simple as buying/Selling any other stock on the
exchange allowing the investors to take advantage of intra dayprice movements
Does not have its net asset value (NAV)
ETFs can be held in your DP account with the other portfolioholdings
A vehicle combines the diversification of a mutual fund withthe flexibility of a stock
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Background The first U.S. ETFs were created by State Street Global
Advisors with the launch of the S&P 500 depositary receipts,also know as SPDRs ("spiders"). Although the first ETFstended to track broad market indexes, more recent ETFs have
been developed to track sectors, fixed income, globalinvestments, commodities and currencies.
In December 2001, India began its foray into the sphere ofexchange traded funds. ETF Nifty BeES, the Nifty Benchmark
Exchange-traded Scheme was the first Indian ETF launchedin the country. Based on the S&P CNX Nifty Index, it waslaunched by the Benchmark Mutual Fund.
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The ADVANTAGE Buy and sell just like a share Buy and sell at real time prices One can put limit orders Delivery in your demat account(T+2) Minimum trading lot just one unit
Provides Diversification One can short sell an ETF or buy on margin or even purchase one
unit, which is not possible with index-funds/conventional MFs No Exit Load Not dependent on the fund manager Like an index fund, they are very transparent No STT on some ETFs(Gold, Oil) Arbitrage in Future and Cash MarketCost Advantage : The only
costs for an investor are brokerage commissions, management feesand taxes
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The Dis-advantage Investors need to have a demat and a trading account
ETFs they have to pay a brokerage (usually around 0.50%). This isconsidered high for a new short term Investor
Advantages in Local ETF disappear in Foreign ETFs
SIP in ETF is not convenient as you have to place a fresh orderevery month
Also SIP may prove expensive as compared to a no-load, low-expense index funds as you have to pay brokerage every time you
buy & sell You cant automatically re-invest your dividends. Secondly, you
may have to pay brokerage to reinvest dividends in ETF, whereasdividend reinvestment in MFs is automatic and with no entry-load
Comparatively lower liquidity as the market has still not caught upon the concept
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How to Invest in ETFs
Trading in Gold ETF is very simple.
It is similar to how you trade in equity shares. You can trade from your existing trading account with your broker
or register yourself with a broker having membership of the NSE,fill up the KYC form, open a demat account, post margins and
then commence trading.
Select an ETFLog into your
Trading A/c or call
your NSE broker
Place an order
ETFs are in dematerialized form and settled like any other
share in the T + 2 rolling settlement.
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ETFs v/s Stocks & Mutual Fund
Functionality ETFs Stocks MF
Unit
Real time trading and pricing throughoutmarket hours
Yes Yes No
Ability to put limit orders Yes Yes No
Can be purchase through NSE broker and/or
online trading a/c
Yes Yes No
Can be traded real time on the NSE Yes Yes No
Is Arbitrage possible between Futures and
Cash Market
Yes Yes No
Is Diversification possible with a single unit Yes No Yes
Returns at per with the market/index Yes No No
Intra day trading Yes Yes No
Paper Less investing Yes Yes No
Exit Load No No Yes
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ETF - Examples
SPDRs
iShares
VIPERs
Nifty BeES Bank BeES
UTI Gold Exchange Traded Fund
SBI Gold ETF
Tata Gold ETF Liquid BeEs
Gold BeEs
SBI Gets
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ETFs-Some classes
Index Funds(Nifty, Junior Nifty, etc.)
Bank Funds (Bank BeES, PSUBNKBEES, KOTAKPSUBK,etc. )
Gold ETF (GoldBEES, KOTAKGold,Gold Share, RelGold etc.)
Liquid Funds(Liquid BeES, HDFC LF, Reliance LF etc.)
Oil ETF (Oil Service HOLDRS T, United States Oil, etc)
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Most ImportantDisclaimer
Market conditions can lead to substantial loss or Profit. Investors areadvised to seek adequate product and market knowledge before investing
or trading in ETFs.
Every investment advice must be properly analysed before participating.The Issuer of advice should not be held responsible for any decsion taken
by the investor.