Exchange Traded Funds (ETFs) in India

ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

Most ETFs charge lower annual expenses than index mutual funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.

The passive nature of ETFs is a necessity: the ETFs rely on an arbitrage mechanism to keep their prices roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund’s holdings.

So If you do not have full knowledge of an ETF, then always choose an ETF with high trading volume so that you can rely on other knowledgeable investors to do the pricing decisions.

ETFs Launched on NSE

* Equity
o Nifty BeES
o Junior Nifty BeES
o Bank BeES
o PSUBNKBEES
o SHARIABEES
o S&P CNX Nifty UTI Notional Depository Reciepts Scheme (SUNDER)
o KOTAKPSUBK
o RELBANK
o QNIFTY

* Liquid
o Liquid Benchmark Exchange Traded Scheme (Liquid BeES)

* Gold
o GOLDBEES
o GOLDSHARE
o KOTAKGOLD
o RELGOLD
o QUANTUMGOLD
o SBIGETS
o RELIGARE

ETF Background Info: They first came into existence in the USA in 1993. It took several years for them to attract public interest. But once they did, the volumes took off with a vengeance. Over the last few years more than $120 billion (as on June 2002) is invested in about 230 ETFs. About 60% of trading volumes on the American Stock Exchange are from ETFs. The most popular ETFs are QQQs (Cubes) based on the Nasdaq-100 Index, SPDRs (Spiders) based on the S&P 500 Index, iSHARES based on MSCI Indices and TRAHK (Tracks) based on the Hang Seng Index. The average daily trading volume in QQQ is around 89 million shares.

This entry was posted in Foreign Investors and tagged , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *