Exchange traded funds (ETFs
) are basically funds that invest in stock market indices, sector-specific stocks or specific commodities and are listed and traded on stock exchanges. ETFs provide an opportunity for investors to take exposure to all the stocks comprising an index, sector-specific stocks, or a particular commodity. Let us look at the types of ETFs available in the market and what they offer to the investors.
Types of ETFs.
such as Nifty ETF or Sensex ETF invest in the 30 stocks of the Sensex or 50 stocks of the Nifty. In India, ETFs that invest in foreign indices such as NASDAQ, Hang Seng, etc. are also available. Hence, investors who invest in index ETFs are actually investing in the basket of blue chip stocks that comprise these indices. The trading value of ETF is based on the net asset value of the underlying stocks that constitute the specific index. Examples of index ETFs include Birla Sun Life Nifty ETF, SBI Nifty 50 ETF, HDFC Sensex ETF, SBI BSE 100 ETF, Motilal MOST Shares NASDAQ 100 ETF, R-Shares Hang Seng BeES, etc.
In the case of sector-specific ETFs, investors get to invest in a basket of select stocks from the particular sector. Sector-specific ETFs are available for sectors such as banks, infrastructure, public sector undertakings, etc. Examples of sector-specific ETFs include Kotak PSU Bank ETF, Edelweiss Nifty Bank ETF, CPSE ETF, R-Shares Infra BeES, etc.
invest in gold, so investors who invest in these gold ETFs get the advantage of investing in the underlying commodity of gold. There are large number of gold ETFs available in the market, including Axis Gold ETF, SBI Gold ETF, Quantum Gold Fund, HDFC Gold ETF, Kotak Gold ETF, Birla Sun Life Gold ETF, UTI Gold ETF, IDBI Gold ETF, etc.
Apart from the above, there are ETFs that invest in companies based on their market capitalisation, or companies consistently paying high dividend or government securities or sharia-compliant companies. Some examples of these ETFs include Motilal Oswal MOSt Shares Mid-cap 100 ETF, R-Shares Dividend ETF, LIC Nomura G-Sec LTE Fund, R-Shares Shariah BeES, etc.
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 change throughout the day.