What are Exchange Traded Funds (ETFs)?

By Vishweshwar HS,   www.showmytrade.com

Exchange-Traded Funds (ETFs) are Index Funds that are listed and traded on exchanges like stocks. If the market is going up, we don’t know which particular stocks are going up; instead, we can buy ETFs, like stocks. 

ETF is a basket of stocks that has the same composition as an Index, like S&P CNX Nifty or BSE Sensex. The ETFs trading value is based on the net asset value of the underlying shares that it represents. ETF is like a mutual fund; the difference is you can trade just like a stock in the terminal.

The underlying assets can be other indexes, sectorial stocks, or other asset classes like gold.

Some of the examples: 

                             NIFTYBEES, CPSEEFT (PSU stocks), 

                             BHARAT 22 ETF, SET GOLD (SBI ETF gold), 

                             NASDAQ 100 SBI ETF Nifty Bank etc.,

Benefits of ETFs

ETFs offer several advantages to investors:

  1. It can easily be bought/sold like any other stock on the exchange through terminals across the country.
  2. The minimum investment is one unit. One can buy any quantities
  3. Divarication flexibility as it is tracking Index.  
  4. Expense & brokerage cost is lower.
  5. It provides arbitrage between Futures and Cash Market.

Globally, ETFs are a top-rated product. It is also an attractive investment option for Retail as well as Institutional Fund Managers. ETFs, give the opportunities for investors to have broad exposure to entire stock markets around the globe and specific sectors with relative ease, on a real-time basis, and at a lower cost than many other forms of investing.

Some Useful Information about ETFs

ETFs are very popular in global markets, with nearly 60% of trading volumes on the American Stock Exchange (AMEX) done in ETF. In 2008, over 1280 ETFs with assets of US$ 760.80 billion were managed by 79 managers across 42 exchanges around the World. Some popular ETFs are: 

1. SPDRs – The first ETFs, S&P 500 Depository Receipts, launched in the market in 1993. SPDRs track the S&P 500. 

2. QQQs – Cubes as popularly known, are listed on the NASDAQ and track the NASDAQ -100. It is the most liquid ETF available.

3. iShares – World Equity Benchmark Shares. Listed on the AMEX stock exchange and have access to 17 foreign stock markets. iShares track MSCI (Morgan Stanley Capital International Indices).

4. TRAHK – The TRAHK ETF, Hang Seng Index, is listed on the Stock of Exchange of Hong Kong. 

Bottom Line

ETFs are better for new beginners or somebody passively participating in the stock market. ETFs do offer very convenient and affordable exposure to a vast range of markets and investment categories.

Investors get the benefit of diversification, less cost compared to other products, easily buy and sell like a stock. If we know the direction but are not aware of individual stocks, ETF is the best-suited product. We can invest in Gold, PSUs, Index, etc., ETFs.

Related Articles:

What is Intraday or Day Trading?

What is Positional Trading?

What are Buy Today and Sell Tomorrow & Sell Today Buy Tomorrow Trading?

Kindly share your comments on the ETFs below. Any information regarding the ETFs adds in the next update.

Thanks for reading.

Good Earning!

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