Skip to main content

Fchange Traded Funds (ETFs) offer varied options for investors

THERE are many exchange traded funds (ETFs) that are available in India now. The maximum attention is focussed on funds that track the Sensex or the Nifty and gold ETF.

The availability of varying options has opened up a large number of opportunities for investors to get a different kind of exposure for their portfolios. Investors need to put in some effort to ensure they are making the best out of the situation.
Basics: A mutual fund has a net asset value (NAV), which forms the basis for transactions that take place in the fund. The price at which the units of the fund are sold and purchased by the investor depends upon the NAV.

There is a restriction that is present in this system because the individual will find that there is only one price at which they can transact even though there might have been a lot of changes that are taking place throughout the day in the value of the fund.

This makes the closing value the only relevant value. On the other hand, ETFs are like shares that an investor can trade during the day so as to take advantage of the multiple values that are possible.

All the factors here are like mutual funds except for the trading part, whereby they are available on the stock exchange.

Most ETFs are index funds so they are passively managed funds. Here are some examples of the variations that are visible in the Indian market.
Slightly active: Most of the ETFs are passively managed funds, but one can still see that in some of them there is a slight bit of active management that is present. A majority portion of the fund assets still maintains its passive management feature, as this will track the index.

So, for example, a fund where 80 per cent to 90 per cent is in the same proportion as the Sensex while the remaining 10 per cent to 20 per cent is actively managed will be this kind of fund.

This means that the overall proportion of the holdings in the portfolio will be different from what the index might suggest and hence this would make the fund different.

This would mean that there could be a slight chance of an outperformance or underperformance from the fund depending on how the actively managed part performs. Independent index: There could be an ETF that is modelled on the basis of a separate index that is created by a mutual fund.

There can be different ways in which this could be done. One would be where the components of the index are different from the leading indices present in the market, while the other example could be where the components are similar to the leading indices but their weights are different.

This might seem to be similar to the option above, but there is a difference here because in the former the actual decision about the portfolio holdings for the active management part is dependent upon the fund manager.

In this case the function depends upon the composition of the index that has specified features and the portfolio matches this differently constructed index.
Sectors: The ETF exposure can also extend to various sectoral indices that form the basis for the ETF portfolio composition.

What this means is that there can be tracking of the index that comprises of a specific sectors such as autos or pharma or banking as per the availability and investor interest.

This by a simple action ensures that there is a wider choice in terms of selection options for the investor because they are able to ensure that they have an exposure where they feel there is a better chance of growth. There will also be a higher risk to this investment.
Foreign exposure: ETFs can now also ensure a foreign exposure for the portfolio because slowly ETF based on foreign indices are also making their way in the Indian market.

At present, the choice is limited but as the situation changes there will be a larger choice as the options in front of the investor increases. This will mean that the investor will also be able to trade on the value of a variety of foreign indices just like they do with the local indices using the ETF route.

 

Popular posts from this blog

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...

Tax on Kisan Vikas Patra Returns

  Taxation of Kisan Vikas Patra The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemption   The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemptions. The interest earned from it is taxed as per the Income Tax slab applicable to the investor on redemption. That means an investor in the highest tax slab will pay 30 per cent tax on the returns from KVP . Also, 10 per cent of the interest earned would be deducted as tax deducted at source (TDS). ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fu...

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...

Special Fixed Deposits

Fixed Deposits Invest Online   One after the another, banks have been slashing interest rates on fixed deposits. In the last year alone, fixed deposit rates for the two-three-year tenure have fallen by 1-1.15 percentage points. But, some banks offer special fixed deposits at higher rates. Here's taking a look at some such deposits. What's on offer The Kuber 400 days deposit from the State Bank of Hyderabad offers 7.85 per cent per annum. This is 10 basis points higher than the 7.75 per cent offered by the bank on its 1-year to less than 2-year deposit. You have to invest a minimum of ₹10,000 in the deposit. There is no penalty for premature withdrawal as long as the deposit has remained with the bank for at least 7 days. Canara Bank has a 444-day and a 555-day deposit, both of which offer 7.85 per cent. This is higher than the 7.75 per cent rate on the bank's over one-year to less than five- year deposits for amounts less than ₹1 ...
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