Scheme Name | NAV | 1w % | 3m % | 6m % | 1y % | 3y % |
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CPSE ETF | 35.04 | 0.86 | -2.93 | 8.74 | 34.37 | 13.97 |
Bharat 22 ETF | 51.28 | 0.38 | 4.93 | 6.92 | 25.04 | 14.79 |
ICICI Pru Nifty FMCG ETF | 436.58 | 1.07 | 16.38 | 18.84 | 19.48 | 0 |
Nippon India ETF Nifty India Consumption | 83.93 | 1.23 | 14.78 | 12.54 | 19.46 | 19.95 |
SBI Nifty Consumption ETF | 77.64 | 1.23 | 14.78 | 12.48 | 19.44 | 0 |
Scheme Name | NAV | 1w % | 3m % | 6m % | 1y % | 3y % |
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Scheme Name | NAV | 1w % | 3m % | 6m % | 1y % | 3y % |
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Scheme Name | NAV | 1w % | 3m % | 6m % | 1y % | 3y % |
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Scheme Name | NAV | 1w % | 3m % | 6m % | 1y % | 3y % |
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Exchange traded funds (ETFs) are closed ended funds that are listed on a stock exchange. They can be bought and sold on a recognized stock exchange and the ETF units can be held in your normal demat account. ETFs track an index like the Nifty, Sensex or global indices. You can also invest in ETFs that are backed by commodities like gold, crude oil etc.
ETFs are a fairly recent addition to the investor’s array of assets available to invest in. Exchange-traded funds are similar to mutual funds in the sense that like a mutual fund, an ETF also holds a basket of individual stocks, indices, bonds, or other asset classes like gold, crude oil, platinum etc. The focus of ETFs is on the word, “exchange-traded” because investors can buy or sell them on a stock exchange during trading hours, just like shares of a publicly traded company. Like the shares of any listed companies, these ETF trades can be executed through your trading account and can be held assets in your demat account
ETF prices fluctuate on a real-time basis based on how the underlying asset moves. To that extent, the ETF is a derivative product as its value is determined by the value of the underlying. This underlying could be an index, a set of stocks, gold, oil or even bond indices. Normally, an ETF unit is defined as a unit of the whole. For example, the normal unit for gold ETF is 1 gram of gold and if the gold spot price is Rs32,000 then the ETF unit will quote at around Rs3200. Even Nifty ETFs are quoted in such proportionate units. Investors can trade ETFs as frequently as they like. Globally, ETFs are heavily in demand by institutions and hedge funds, although in India it is more of a retail product.
ETFs may appear to be similar to mutual fund units but there is a small difference. Mutual funds are not geared for trading. In India, mutual fund units are available at their net asset value calculated and reported at the end of each trading day. When you trade ETFs, you don’t have exit loads or entry loads. You only have the commission to be paid. The costs in a typical ETF are lower than in the case of mutual funds and that makes it a better choice for individual investors.
It is interesting to understand how ETF units are created. In a mutual fund, it is the AMC that holds the portfolio of stocks and the mutual fund NAV is based on the value of the holdings adjusted for any liabilities and costs. However, in ETF, what is underlying and is it safe? For that, we need to understand how ETF units are actually created. Here are 4 steps.
How can an investor put money in ETFs? These are ETFs are exchange trade products and hence can be purchased and sold in the stock markets. Here are the steps that an investor needs to go through while trading in ETFs.
ETFs are simple products and can be purchased and sold like any stock in the market. It is also much simpler as the ETF can be held in custody in your demat account. Here are some really compelling reasons for you to invest in ETFs.
An ETF is a low cost and passive method of participating in an asset class like gold, silver, crude oil or equity and bond indices. Here are some categories of investors who should seriously look at investing in ETFs.
- Trade like stocks
You can buy and sell an ETF during market hours on a real time basis as well as put advance orders on purchase such as limits or stops. In case of conventional mutual funds, purchase or sale can be done only once a day after the fund NAV is calculated.
- Low cost of investment
The passive investment style with low turnover helps keep costs low. ETFs are known to have among the lowest expense ratios compared to others schemes.
- Diversification benefit
In case of Nifty ETF, you own the complete basket of 50 stocks and remain diversified.
- Simple and transparent
The underlying securities are known and quantities are pre-defined (In case of conventional mutual fund schemes, one needs to wait for the monthly factsheet). No form filling is required if you transact in the secondary market. Investment can be made directly from the fund house or the exchange.
- Supports small ticket investments
ETFs are a great tool for investors wanting to start with a small corpus. The minimum ticket size is 1 unit (in case of IIFL Nifty ETF, 1 unit is approximately 1/10th of Nifty level, i.e Rs500, when Nifty is at 5000). Premium and discount also tends to be higher in the futures segment, than in ETFs.
- ETFs are taxed like stocks
nvestors can take advantage of special rates for short term and long-term capital gains.
- Target audience
Long term investors
First time investors
Investors looking for a low cost diversified portfolio
Traders who do not have enough capital to invest in index futures
Institutional investors looking to temporarily park cash during portfolio transition
Arbitrageurs to carry out operations with low impact cost
- Concept of tracking error
The extent to which the NAV of the scheme moves in a manner inconsistent with the movements of the underlying Index on any given day or over any given period of time due to any cause or reason whatsoever including but not limited to expenditure incurred by the scheme, dividend payouts if any, all cash not invested at all times as it may keep a portion of funds in cash to meet redemption, purchase price different from the closing price of securities on the day of rebalance of Index, etc.
- Points to note before investing in ETFs
- Invest in ETFs with ample secondary market liquidity
Fund houses do depend on market makers and arbitrageurs to maintain liquidity to keep the price in line with the actual NAV.
- ETFs track the target index
Any investor wanting an exposure to a particular target index like Nifty will do well by investing in ETFs. The objective of ETF is to be the index rather than beat the Index.
- Always invest in key benchmarks ETFs rather than sectoral funds
Investing in sectoral ETFs is prone to higher volatility compared to key benchmark ETFs like Nifty.
- Cost of trading on the exchange
Investor will have to bear the cost of brokerage and other applicable statutory levies e.g, Securities Transaction Tax, etc, when the units are bought or sold on the stock exchange.
ETFs, for all practical purposes are exactly like shares. They are listed and traded on the stock exchanges and the rules for delivery and margin payment are also exactly the same as in the case of equities. Normally, when you buy an ETF, the broker will ask you to pre-fund the trading account. If your account is still not funded till the end of the day, the broker will urge you to deposit the full amount latest by next day (T+1) morning 10.30 am. If you are unable to pay the amount by that time then it becomes a default.
Traders and investors need to make two kinds of payments to their brokers. Firstly, there is the margin which you pay as a percentage of the total value in case you are going for intraday trading or trading on margins that is funded by the broker. Such funding is normally done by the NBFC arm of the broker since SEBI regulations do not permit the broker to fund a client account. In the case of intraday trading, the margin can be paid either in the form of cash or in the form of stocks / ETFs.
However, it needs to be remembered that while you will get the full value of the cash deposited as margin, you will only get the partial value (after a haircut) in case of assets like equities and ETFs. The norm is to give you margin to the tune of 50% of the value your shares and ETF holdings. However, since ETFs are less volatile and less vulnerable to sudden price shifts, you can negotiate with your brokers for a lower haircut so that you can get margins to the tune of 60-65% of the value of the ETFs deposited by you. Remember, these are only for intraday trading and you are required to close out the margin position on the same day. If you do not close the position by 3.00 pm in the afternoon, the broker’s RMS will automatically terminate all open intraday positions. In case the position is somehow missed out, the broker will make a margin call to pay up the balance to the exchange. If you are unable to pay then the broker has the leeway to sell your pledged ETFs and realize the dues.
ETFs may appear to be a plain vanilla product but there are some interesting applications apart from just taking a macro view on an index or a commodity. Here are a few of them.
In a sense, ETFs are also derivative products since they derive their value from an underlying asset like an index, commodity or bond index or even sector. Even futures are a derivative on an underlying like the stock or the index. Are futures and ETFs the same? There are some subtle differences.
Both ETFs and index mutual funds are an indirect position on the index. They represent a common approach to buying the entire market via an index rather than getting into stock selection. The choice would be based on your specific needs but here are some key differences between index funds and ETFs.
In India, ETFs are more popular among retail investors rather than the institutional investors. Globally, ETFs are also quite popular among institutional investors and hedge funds. Here are some of the key benefits of ETFs.