Handbook on Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs)
Yes, now there are many exchange traded funds listed on National Stock Exchange which can change the way you invest.

ETFs are essentially mutual fund schemes or index funds that are listed and traded on the exchange like stocks. ETFs are priced continually and can be bought or sold through out the day. Buying or selling ETF's is as simple as buying/selling any other stock on the exchange allowing the investors to take advantage of intra day price movements. Other advantage of ETF is, you can buy even one unit and hence take exposure in entire index at very low amounts.

Advantages of ETFs:

• Buy or Sell just like a share
• Buy and sell at real time prices
• One can put limit orders
• Delivery in your demat account
• Minimum trading lot just one unit

Uses Of ETFs:
Due to unique structure of ETFs, all types of investors whether retail or institutional, long term or short term, can use it to their advantage.

• Individual
• Corporate
• Institutions

Costs
Since ETFs are traded on the exchange, the only costs for an investor are brokerage commissions, management fees and taxes.

Some Popular Classes of ETFs
Equity Index ETF
Equity Index ETFs are funds whose unit price is derived from basket of capital market securities. These baskets of securities differ depending upon the nature of ETF for example value of NIFTYBeEs or UTISUNDER is derived from securities that comprises NIFTY index.

Uses

• Use it to build a long term core holding of equity by systematically investing in various index funds like Nifty ETF, Nifty junior ETF and so on.
• If bullish on market, just buy a index ETF and no need to do individual stock picking.
• If you have a individual stock in your portfolio, just do a switch trade by selling the stocks in your portfolio and buying an index ETF of your choice

Advantages

• Buy the index as a share
• Real time NAV and prices close to 1/10 of the index value
• No hassles of margin calls (like futures)
• Low expense ratio
• Taxation is like a share (Long term capital gain is 0 and short term is 15%)

Gold ETF
Gold ETFs are units representing physical gold, which may be in paper or de-materialized form. These units are traded on the exchange like any other stock of any company.

Uses

• To keep Gold in your portfolio, buy Gold ETFs
• To accumulate gold for social obligations, buy a Gold ETF and you can sell them to purchase jewellery or other forms of gold when you desire.

Advantages

• Price appoximately equal to 1 gram of Gold
• Backed by physical gold holding of 99.5% purity or 24 carat
• No wealth Tax
• Long term capital gains after one year
• No STT
• No storage issues and fear of theft
• Near wholesale price for buying and selling even one unit compared to huge premium for buying small amounts of Physical Gold.
• Listed and Traded on the NSE with a minimal lot size of 1