Oct

30

An Introduction to Exchange Traded Funds (ETF)

Posted In: Investing Tips

The latest buzzword in the Indian financial market is something known as Exchange Traded Funds (ETFs). ETFs are essentially Index Funds that are listed and traded on the exchange like stocks. An ETF is a basket of stocks that reflects the composition of an Index, like S&P CNX Nifty or BSE Sensex. The ETFs trading value is based on the net asset value of the underlying stocks that it represents. Think of it as a Mutual Fund that you can buy and sell in real-time at a price that change throughout the day.

Until the development of ETFs, this was not possible before. Now, ETFs have opened a whole new panorama of investment opportunities to Retail as well as Institutional Money Managers. They enable investors to gain broad exposure to entire stock markets in different Countries and specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing

Advantages of ETFs to investors: -

1. Easily traded like any other stock on the exchange through terminals across the country.
2. Buy / Sell anytime during market hours at a price close to the actual NAV of the Scheme.
3. Ability to put limit orders.
4. Minimum investment as low as one unit.
5. Low Expense Ratio.
6. Flexibility of a stock and diversification of index fund

Globally, ETFs are a phenomenon which are growing by the day and are really popular with almost 60% of the volumes traded on the American Stock Exchange (AMEX) are held by the ETFs.

On US Exchanges 11 out of top 25 Volume leaders are ETFs

Value wise share these 11 ETFs are an astounding 78%

10 years back it was less than 25%

In India since last six months three ETFs frequently come in 100 most traded scrips on NSE. They are Nifty BeES, Gold BeES and Liquid BeES. Although ETFs are at a very nascent stage, but are catching up pace as time goes by.

Thanks
Gaurav Agrawal
ETF Investment

Article Source: An Introduction to Exchange Traded Funds (ETF)