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Exchange traded funds


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Exchange traded funds

  1. 1. Exchange Traded Funds<br />From,<br />RohitRamachandran(2010187)<br />SakshiAgarwal (2010206)<br />1<br />
  2. 2. History<br />The very first ETF was issued in 1993 in US by State Street Global Advisors with the launch of the S&P 500 depositary receipts, also know as SPDRs ("spiders"). <br />The very first ETF, in India, was launched by Benchmark Mutual Fund in the year 2002 named Nifty BeES which was based on the S&P CNX Nifty Index .<br />2<br />
  3. 3. Introduction<br />Basket of securities which are traded on a stock exchange.<br />The investment objective is to mimic the same return as that of a particular market index.<br />ETF originates through a new fund offering (NFO) by an AMC.<br />Investors exchange their portfolios and cash component in return for ETF units.<br />NFO are limited to large Institutional investors and other large investors.<br />3<br />
  4. 4. ETF units are made up of two components- portfolio deposit and cash component.<br />The NAV of ETF is the value of all the components of the benchmark index held by ETF, plus all accrued dividends less management fees.<br />ETF can be either held as an investment or sold in the secondary markets.<br />Investors also can redeem the ETF units in exchange for the underlying securities but not cash.<br />4<br />
  5. 5. Advantages<br />Buy and sell just like a share<br />Minimum trading lot just one unit<br />Provides Diversification<br />Lower management costs than index funds, since they are listed in exchange and hence their sale and redemption are much lower.<br />Traded throughout the day in stock exchange, hence better than open ended Mutual Funds which are traded only at days closing NAV with the AMC’s.<br />5<br />
  6. 6. Better than closed ended Mutual Funds whose NAV’s may not reflect actual underlying assets whereas ETF NAV reflect actual because of arbitrage possibilities.<br />Lower tracking error as compared to index funds because of arbitrage opportunities.<br />Comparative ease in taking long and positions in ETF than an index fund.<br />6<br />
  7. 7. Why Represents Actual NAV?<br />NAV is at premium to under lying asset :-<br />AMC can create additional ETF units by depositing lower priced securities.<br />NAV is at discount to under lying asset :-<br />AMC can redeem ETF units for higher valued underlying securities and sell it in secondary market.<br />7<br />
  8. 8. ETFs v/s Stocks & Mutual Fund<br />8<br />
  9. 9. ETFs-Some classes<br />Index Funds (Nifty, BSE, etc.) <br />Bank Funds (Bank BeES, PSUBNKBEES, etc. )<br />Gold ETF (GoldBEES, KOTAKGold,Gold Share, Rel Gold etc.)<br />Liquid Funds (Liquid BeES, HDFC LF, Reliance LF etc.)<br />Oil ETF (Oil Service HOLDRS T, United States Oil, etc)<br />9<br />
  10. 10. Equity Index ETF<br />This is an index ETF that tracks an Index like Nifty, CNX Bank Nifty which means that it holds the stocks in the same proportion as they are present in the Nifty index, Bank stocks likewise. <br />Equity index ETFs are funds whose unit price is derived from basket of capital market securities. <br />These baskets of securities differ depending upon the nature of ETF.<br />Example:-<br />Nifty BeES(Index ETF), QNIFTY(Index ETF).<br />10<br />
  11. 11. GOLD ETF<br />Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the exchange like a single stock of any company.<br />Easily redeemable into cash.<br />Removes the disadvantage of extra cost related to the need for security lockers for physical gold.<br />Accumulate Gold for social obligations buy a Gold ETF and you can sell them to purchase jeweler or other forms of gold when you desires.<br />11<br />
  12. 12. THANK YOU<br />12<br />