In a recent development, Exchange traded funds has gained wide popularity, among investors as financial instruments, because of the unique...
In a recent development, Exchange traded funds has gained wide popularity, among investors as financial instruments, because of the unique advantages they provide over mutual funds. These instruments are highly advantageous for investors, who find it difficult to master the tricks of the trade resulting out of analyzing and picking stocks for their portfolio.(
Various Asset Management Companies, Managing Mutual funds have started providing ETF products that attempt to replicate the indices on NSE, so as to provide returns that closely correspond to the total returns of the securities represented in the index. ETF’s now currently available on NSE are extremely diverse which include Equity, Debt, Gold and International Indices ETF’s.
Read other types of Mutual Funds
Read other types of Mutual Funds
ETF's launched on NSE
Exchange Traded Funds (ETF) are essentially Index Funds that are listed and traded on exchanges like stocks. An ETF is a basket of stocks that reflects the composition of an Index, like CNX Nifty. The ETFs trading value is based on the net asset value of the underlying stocks that it represents. The funds rely on an arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund's holdings.
ETF’s was first introduced in USA in 1993. It took several years for them to attract public interest. But once they did, the volumes took off with a vengeance. Over the last few years more than $120 billion (as on June 2002) is invested in about 230 ETFs. About 60% of trading volumes on the American Stock Exchange are from ETFs. The most popular ETFs are QQQs (Cubes) based on the Nasdaq‐100 Index, SPDRs (Spiders) based on the S&P 500 Index, iSHARES based on MSCI Indices and TRAHK (Tracks) based on the Hang Seng Index. The average daily trading volume in QQQ is around 89 million shares.
ETF s Scheme launched on National Stock Exchange, NSE, represent Equity, Debt. Gold and World Indices. ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange.
Advantages of ETF’s over Mutual Fund:
There are certain specific advantages which ETF has over Mutual Fund which are listed below:
1. Unlike regular open‐end mutual funds, which are also basket of securities, ETFs can be bought and sold throughout the trading day like any stock.
2. Most ETFs charge lower annual expenses than index mutual funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.
3. Even though ETFs and Futures allow investors exposure to an index, they are different in many regards. While Futures is a derivative product and trades in the F&O segment of NSE, ETFs are a cash market product and trade in the Capital Market segment of NSE.
4. The maximum tenure available for futures is 3 months while ETFs can be held for as long as the investor wants.