fp exchange traded funds

7/30/2019 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.

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