Source: The Hindu Business Line
Exchange Traded Funds are index funds whose units traded on the stock exchanges. These ETFs passively track specific indices, which could be broad market indices like Sensex or Nifty or sector indices like the Bankex. The investment objective of these ETFs is to generate the same returns as the underlying index. The net asset value (NAV) of one unit of the ETF is a proportion of the underlying index — one tenth, one hundredth etc. Typically, close-ended mutual funds that are listed on the exchange trade at a premium or a discount to the NAV. However, as ETFs have a pre-defined portfolio composition, they tend to trade at prices closer to their NAV. Essentially, every time an ETF falls below the underlying index, there is an arbitrage mechanism that ensures that the gap is filled.
ETFs are convenient vehicles for investors to trade, to invest or to arbitrage. Investors who want to take a call on the market and thus invest in Nifty basket can instead buy in to Nifty BeEs. They can do this intra-day, instead of buying into index funds at the closing NAV.
Sector positions can also be taken. Those who like the banking sector can buy the Bank BeEs. ETFs do not come with the carrying cost that is associated with Nifty future or Bank Nifty. The volatility associated with futures is also absent in the ETFs. So, they would be safer for retail investors, if they do not mind the lack of liquidity in these instruments.
The ETFs on NSE are S&P CNX UTI Notional Depository Receipts Scheme (SUNDER), Liquid Benchmark Exchange Traded Scheme (Liquid BeES), Junior Nifty BeES, Nifty BeES and Bank BeES. The ETF on BSE is SPIcE. A complete discussion on ETFs is available on the NSE website or on http://www.benchmarkfunds.com/
ETFs are convenient vehicles for investors to trade, to invest or to arbitrage. Investors who want to take a call on the market and thus invest in Nifty basket can instead buy in to Nifty BeEs. They can do this intra-day, instead of buying into index funds at the closing NAV.
Sector positions can also be taken. Those who like the banking sector can buy the Bank BeEs. ETFs do not come with the carrying cost that is associated with Nifty future or Bank Nifty. The volatility associated with futures is also absent in the ETFs. So, they would be safer for retail investors, if they do not mind the lack of liquidity in these instruments.
The ETFs on NSE are S&P CNX UTI Notional Depository Receipts Scheme (SUNDER), Liquid Benchmark Exchange Traded Scheme (Liquid BeES), Junior Nifty BeES, Nifty BeES and Bank BeES. The ETF on BSE is SPIcE. A complete discussion on ETFs is available on the NSE website or on http://www.benchmarkfunds.com/
Post a Comment