Skip to main content

Exchange Traded Funds (ETFs)

 

 

ETFs provide a real time price discovery for investors and relegate the investment effort to a click of a button. Additionally, the cost of investment is far reduced, and hence they provide an inherent growth advantage

 

EXCHANGE-traded funds (ETFs), as the emerging mutual product fund segment in India, have positively redefined the value proposition for investors. Despite an increasing overlap of the ETF concept with exchange traded products, the crucial difference is that, ETFs are mutual funds that are available only through exclusive medium of stock exchanges. Thus in contrast to a regular fund, which can be brought or redeemed off the counter or at the exchange, ETFs are available only through the latter.


   The underlying asset of an ETF can be any tradable asset: be it stock, commodity, bonds and currency. Currently, in the Indian context, only stock ETFs and gold ETFs have received the regulator and the investor acceptability.


   ETFs provide a real time price discovery for investors and relegate the investment effort to a click of a button. Additionally, the cost of investment is far reduced, and therefore provides an inherent growth advantage vis-à-vis other funds. Additionally, many ETFs also provide a passive exposure to assets that otherwise would be out of reach for most investors. Albeit, even actively managed funds are readily available through ETFs.


   ETFs, since they are traded on the stock exchange, are subject to the same cost which are applicable to share trading, i.e,: brokerage, STT, demat cost (if any) etc.


   In turn, ETF units are only managed by the funds, (actively or passively) and as such invite a lower 'expense ratio' from asset management companies (AMCs). Therefore, the cost of purchasing ETF units is directly dependent on the frequency of entry and exit, as well as the size of acquisition. On the other hand, the entire corpus of a regular mutual fund (most of the time) invites the same cost, irrespective of the size of individual holdings.


   The convenience of acquiring, holding and divesting ETFs are also a key feature that make them stand out from the rest. Since ETFs are traded like the stock, the acquisition, valuation and disposal of the investment is real time. Moreover, the price discovery largely tends to be precise, rather than on the end of day basis. This facilitates the investor to utilise the price variations in the underlying asset in a relatively sharp detail and time. Investors can also carry out other features of stock investment in ETFs that is otherwise not feasible in a regular fund. Namely, day trade, short sell, limit order and a potentiality to buy and sell a stock in a single unit.


   In the present market context, wherein the market has approached its 2008 peak level, the ease and accessibility of ETFs may come in handy in managing the emerging investment environment.


   For instance, increasing liquidity and a largely hawkish interest rate regime have had a variegated effect on the equity markets. The Sensex is trading at around 16X forward PE. This valuation is significantly cheaper than the previous peak of 2008 but still looks stretched from the historical average. Nevertheless, the sharp emergence of Indian equities, and the resultant FII induced liquidity glut, have kept the market momentum going. Also, with the Indian economy maintaining its high growth rate, global flows may continue to find their way into the Indian equities market.


   In this backdrop, investors can (subject to the market prognosis) actively allocate corpus between an index ETF and a gold ETF. Additionally, investors can execute their own 'flexible' SIP by self-ascertaining the time and scale of investment depending on the market condition.Also, a potent case for investment in gold ETF remains. A volatile geopolitical setup, an increasingly chary global economy and the rising demand for gold jewellery in India and China are some of the reasons that make investment in gold ETFs a lucrative investment opportunity.

 

Popular posts from this blog

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now