An exchange traded fund (ETF) is essentially an index fund that trades like a stock and is listed on the exchange. Although popular abroad, it’s still a new concept in India. Currently, India has 16 ETFs, with total assets under management of Rs 4,182 crore as of September 2008. In the US, by contrast, there are 707 ETFs, with combined assets of $585.9 billion or Rs 27.5 lakh crore.
An ETF is a single security representing a basket of stocks that corresponds to a particular index, say, the S&P CNX Nifty or Sensex. The ETFs trading value is based on the net asset value of the underlying stocks that it represents . Much like an index fund, an ETF offers built-in diversification . But because ETFs can be bought or sold within the trding day, they offer the flexibility of a stock. Like individual equity securities, ETFs are traded on a stock exchange and can be bought and sold throughout the day through a broker-dealer , just like Infosys or Reliance Industries shares.
Types of ETFs
ETFs can be broadly classified into index, commodity, and bond funds.
Most ETFs are index funds that hold securities and attempt to replicate the performance of a stock market index. An index fund seeks to track the index’s performance by holding either the contents of the index, or a representative sample of securities in the index.
Commodity ETFs invest in commodities such as precious metals and futures. In India, we only have gold ETFs.
As for bond ETFs, there is currently only one available in India, namely Liquid BeES.
There are other types of ETFs, such as currency ETFs and actively managed ETFs but they are not yet available in India.
No investment is perfect, but ETFs offer a broad range of benefits. They’re easy to trade, they offer diversification and depending on your situation, they might just be an attractive alternative to mutual funds and other investments.
Exchange Traded Funds (ETFs) are quickly becoming an alternative to mutual funds.
Posts
4 comments:
Jaspreet, I have a couple of questions -
1. Are ETF's traded in the market at a Market Price?
2. Is it advisable in today's scenario to invest in an ETF and not in normal stocks ?
I hope you know that I am a Marketing Student, :) so can you please answer these two questions in a simpler language.
Thankyou.
yup well all i know abt it is that :
ETF is an investment vehicle traded on stock exchanges, much like ordinary stocks.So, yes while was going through the performance tracker i founded them listed at market prices.
And for the second part , acc. to me an ETF is a fund which comprises of a group of stocks, bonds, or other investment vehicles similar to a mutual fund. However, unlike a mutual fund, ETFs are traded like stocks allowing a trader to buy and sell during normal exchange trading hours. Hence we can have immediate access to our funds upon selling an ETF position during normal market hours anytime we want.
While ETFs can be generally more cost and tax efficient than mutual funds, a commission cost applies in the same way as it would have when trading stocks. There are no minimum buy requirements or holding period requirements common to many mutual funds.
check this out:
http://www.invescopowershares.com/pdf/P-LIZ-WP-1-E.pdf
where the misconceptions of actually treating ETFs as stocks are reflected.
Sorry, if i couldnt clear your doubt but ll try if i furtehr get my hands on something worth to be shared soon.
Thank you..!!!
Thankyou Jaspreet.
You explained it pretty clearly and covering all the points. That was indeed appreciable on your part.
Checked the hyperlink and got to know more about it.
And, Please avoid formalities. :)
Thankyou again.
Post a Comment