Index - Exchange Traded Funds (ETF)

Index Exchange Traded Funds are essentially Index Funds that are listed and traded on capital markets (exchanges) like equities. 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 changes throughout the day.

ETF are kind of passively managed fund as it doesn't really need to have a  dedicated fund manager , or financial analysts as its job is to replicate investment as per weight-age of underlying security. / index Liquidity is provided by listing on the capital markets. Rtturns provided are quite high and can be in range of 12-18% CAGR over 10+years period and comparatively much safer than Direct Equity Investment, more cost effective than actively managed funds. In my future post I will try and explain what does Index means and provide historical analysis of kind returns provided by index over past 30 years of its existence in India.

Nifty BEES by Benmark mutual fund is an example of index ETF. There are some similar ETF from UTI, Kotak etc. In near future we may see launch of Index funds with underlying securities of Hong Kong Stock Exchange (Hang Seng), MSCI Index etc.

Gold Exchange Traded Fund

Gold is one of the most preferred way of investing for Indian more so because it has got huge emotional quotient (EQ) in our hearts. Gold gives a feeling of financial security. Besides Gold is the best and age old hedge against inflation. most liquid form of investment, universal acceptance. We Indians do tend to weigh our financial status with how gold we own.

But with that EQ also comes question of storing gold securely, purity checks, implication of wealth tax, income tax implication by way capital gains etc. Now with introduction of Exchange traded fund for golds since past couple of year this issue can be handled more efficiently. Yes by having gold in DEMAT (Dematerialize) form through Gold Exchange traded fund

Gold exchange traded fund offers investors an innovative, cost-efficient and secure way to access the gold market. Gold ETF is intended to offer investors a means of participating in the gold bullion market without taking physical delivery of gold,and to buy and sell on National Stock Exchange (NSE).

Gold ETF usually provide returns that closely correspond to the returns provided by domestic price of gold through physical gold

• Low cost way of investing in gold
• Excellent Diversification for Portfolio
• Quick and Convenient Dealing for investors
• No Storage & Security Issues
• Transparent Pricing
• Taxation of a Mutual Fund
• Listed and traded on NSE just like a stock-Easy

Exchange Traded Funds(ETF)

Exchange Traded Funds are essentially Index Funds that are listed and traded on exchanges like stocks. Until the development of ETFs, this was not possible before. Globally, 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.

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 changes throughout the day.

Benefits of ETFs?

ETFs offer several advantages to investors: -

1. Can easily be bought / sold like any other stock on the exchange through terminals across the country.
2. Can be bought / sold anytime during market hours at a price close to the actual NAV of the Scheme.
3. No separate form filling. Just a phone call to your broker or a click on the net.
4. Ability to put limit orders.
5. Minimum investment is one unit.
6. Enjoy flexibility of a stock and diversification of index fund.
7. Expense Ratio is lower.
8. Provides arbitrage between Futures and Cash Market.