Table of Contents
Exchange Traded Funds (ETF) is one of the popular investment opportunities for investors across the globe. ETF mainly work on stock exchanges, the units of Exchange Traded Funds are registered in stock exchanges and NAV differs according to market movements. In the year 2021, the ETFs have obtained a record influx of US$1 trillion. Even in India the popularity of the ETF is growing day by day, where the Indian fund houses have introduced various types of ETFs in order to provide for the investors needs in the end of few months. According to AMFI data, the fund houses have started 17 fresh ETFs during the period of November 2020 and November 2021. Hence shows there is a rise in its popularity. The total number of ETFs leaf as of 30 November 2021 was about 1 crore, up from 40 lakhs leafs during last November.
Exchange Traded Funds – Definition
ETFs or Exchange Traded Funds are a type of collaborative investment securities that works almost like a mutual fund. Commonly, ETFs track a certain sector, index commodity or other assets but are desperate of mutual funds. Like regular stocks, ETFs can also be bought and sold on a stock exchange. Exchange Traded Funds can be designed to focus anything from the price of a personal commodity to a wide and diverse group of securities. Even ETFs can be arranged to track certain investment strategies.
Exchange Traded Funds –Types
The United States has structured most of the ETFs as open-end management investment companies, which is the same as that used by the money market funds and mutual funds. While some ETFs, counting from the largest ones, are designed as unit investment trusts. The different types of Exchange Traded Funds are given below;
Market Index ETFs
The Market Index ETFs routes all the substantial market indexes and these ETFs are the few from the most active ETFs. Also, there are Market ETFs which route low-volume indexes. The indexes depend on the ethics of stocks, bonds, commodities, currencies etc.
Often more difficult to access than stock. The Commodity ETFs mainly route the price variation of specific commodities such as silver, gold or oil. They are attractive options to stocks for further diversification of your profile and risk. Although, the commodity ETFs are less translucent than the stock ETFs or index. Mostly they don’t personally own the primary assets like gold but instead utilize their derivatives. As the descendents track the basic price of commodities but take higher risk (like counterparty risk) than an ETF which directly owns the primary assets.
Bond / Fixed ETFs
The intention of bond ETF is to recreate the income of an index of bonds; in other words bond ETFs are used to issue even income to the investors. These bond ETFs have monthly income compensation, are expanded and have a high liquidity rate. The income issuance of bond ETFs are based on the working of underlying bonds. Which might involve corporate bonds, government bonds, state and local bonds – known as municipal bonds. Despite their underlying implement, bond ETFs don’t have a growth date. Generally, they trade at a premium or markdown price from the actual bond price.
The currency ETFs allows investors to invest in or short prime currency, or currency baskets. They are provided by the Deutsche and Invesco banks among others. The investors can yield from the foreign exchange spot change, while collecting the local institutional interest rates and collateral profit.
Actively Managed ETFs
In this type of ETF, the fund leader or manager executes the strategies regarding the profile of underlying assets.
The Leveraged exchange-traded funds (LEFTs) bid to obtain daily pay back that are double of returns of the proportioning index. Leveraged ETFs are riskier compared to others ETFs. As they utilizes debts and financial descendents to improve the pay back on the underlying index.
Inverse ETFs are also referred to as ‘Bear ETF’ or ‘Short ETF’. The yield works inversely to their standard index portfolio according to trading derivatives, short selling and so on. Inverse ETFs are similar to withstanding numerous short positions or accessing a combination of advanced investment policies to yield from the dropping prices.
Exchange Traded Funds – Benefits
Usually ETFs provide low average costs as it would be exorbitant for an investor to afford all stocks held in ETF profile personally. Typically they have a low price because they target an index. However, all ETFs do not track an index, in a passive manner. Therefore, it has a high expense ratio. The benefits of Exchange Traded Funds are discussed below;
- Give access to numerous stocks around various industries.
- Low broker commissions and low expense ratios.
- High risks are managed through diversification.
- Exchange Traded Funds aim on industries that are targeted.
Exchange Traded Funds India
The Indian Exchange Traded Funds are broadly classified into six groups. Check the table given below;
|Index ETFs||Gold ETFs||Sector ETFs||Bond ETFs||Currency ETFs||Global Index ETFs|
|1. Motilal Oswal NASDAQ 100 ETF
2. HDFC Sensex ETF
3. SBI – ETF Sensex
4. Edelweiss ETF – NQ30
5. UTI Sensex ETF
|1. Birla Sun Life Gold ETF
2. Invesco India Gold ETF
3. SBI – ETF Gold
4. Kotak Gold ETF
5. Axis Gold ETF
6. UTI Gold ETF
7. HDFC Gold ETF
|1. Nippon ETF Consumption
2. Nippon ETF Infra BeES
3. Kotak NV 20 ETF
4. ICICI Prudential NV20 ETF
|1. Nippon ETF Long Term Glit
2. SBI ETF 10 Year Glit
3. LIC G-Sec LTE Fund
4. Nippon ETF Liquid BeES
|1. Wisdom Tree Indian Rupee Strategy Fund
2. Market Vectors – Indian Rupee/ USD ETN
|1. Nippon ETF Hang Seng BeES
2. Motilal Oswal NASDAQ 100 ETF
Exchange Traded Funds are popular because of the Liquidity, versatility and the low trading costs that ETFs provide. Hope the information provided in this article is useful.