An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product.
An ETF combines the valuation feature of a mutual fund or stock, which can be bought or sold at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be more or less than its net asset value. Closed-end funds are not considered to be ETFs, even though they are funds and are traded on an exchange.
Only authorized participants, which are large broker-dealers that have entered into agreements with the ETF's distributor, actually buy or sell shares of an ETF directly from or to the ETF, and then only in creation units, which are large blocks of tens of thousands of ETF shares, usually exchanged in-kind with baskets of the underlying securities. Authorized participants may wish to invest in the ETF shares for the long-term, but they usually act as market makers on the open market, using their ability to exchange creation units with their underlying securities to provide liquidity of the ETF shares and help ensure that their intraday market price approximates the net asset value of the underlying assets. Other investors, such as individuals using a retail broker, trade ETF shares on this secondary market
1. NAME : JAIN SONAL
ROLL NO. : 26 (FIN)
SUBJECT : STOCK EXCHANGE AND PORTFOLIO
MANAGEMENT
SUBMITED TO : MRUNAL SIR.
2.
3. ETFs are mutual funds that trade like a stock
Exchange Traded Fund (ETF)
– Simplicity
– Transparency
– Risk control
– Diversification
– Open-End Fund
Stock:
– On Exchange
– Trading flexibility
– Trading strategies
+
MUTUAL FUND STOCK
EXCHANGE TRADED
FUND
3
4. 4
Redemption
PRIMARY MARKET SECONDARY MARKET
Authorized
Participants & Large
Investors
ETF Issuer
Buyer
Exchange
Seller
Buy & Sell
Market Making
Arbitrage
Creatio
n
Cash
ETF
Units
Cash
ETF
Units
* Creation & Redemption of ETF units is done only in integral multiples of creation units.
5.
do not sell or redeem their individual shares
at net asset value (NAV). Instead, financial
institution purchase and redeem ETF shares
directly from the ETF, but only in large blocks
varying in size from 25,000 to
200,000 shares, called creation units.
Purchases and redemptions of the creation
units generally are in kind , with the
institutional investor contributing or receiving
a basket of securities of the same type and
proportion held by the ETF
6. 6
Market Value or Fair Value of
Schemes Investments
Net Current Assets (including
accrued expenses)
+
Number of Units Outstanding as on
Valuation Date
NAV (INR) =
7. Two primary features of an ETF’s structure
promote trading of an ETF’s shares at a price
that approximates the ETF’s underlying value:
portfolio transparency
the ability for authorized participants to
create or redeem ETF shares at net asset
value (NAV) at the end of each trading day.
9. Most ETFs are index funds that hold securities and attempt
to replicate the performance of a stock market index.
An index fund seeks to track the performance of an index
by holding in its portfolio either the contents of the index
or a representative sample of the securities in the index.
10. Commodity ETFs invest in commodities, such as precious
metals.
first commodity ETFs were gold exchange-traded funds,
which have been offered in a number of countries. The idea
of a Gold ETF was first officially conceptualized by
Benchmark Asset Management Company Private Ltd in India
when they filed a proposal with the SEBI in May 2002.
11. Liquid ETFs are funds whose unit price is derived from
Money market securities comprising of government bonds
treasury bonds, call money market etc, ETFs are immediately
tradable; therefore, the risk of price movement between
investment decision and time of trade is substantially less
when ETFs are used in lieu of traditional funds.
12. Buy and sell just like a share
Buy and sell at real time prices
Like an index fund, they are very transparent
Cost Advantage : The only costs for an investor are brokerage
commissions, management fees and taxes
Minimum trading lot just one unit
Provides Diversification
Arbitrage in Future and Cash Market
13. They have to pay a brokerage (usually around 0.35% to .99% ). This is
considered high for a new short term Investor.
Advantages in Local ETF disappear in Foreign ETFs.
Have to place a fresh order every month.
You can't automatically re-invest your dividends.
15. ETFs V/S Stocks and Mutual Fund
Functionality ETFs Stocks Mutual Funds Unit
Can be purchase through NSE
broker or online trading account
Yes Yes No
Ability to put limit orders Yes Yes No
Real time trading and pricing
throughout market hours
Yes Yes No
Returns at par with the
market/index
Yes No No
Notes de l'éditeur
NAV: The NAV of each Scheme will be calculated upto four decimals. The NAV shall be calculated and announced on each working day. The NAV of the Scheme will be communicated to at least two newspapers on a daily basis. The same will also be displayed on the fund website
Domestic price of gold = (London Bullion Market Association AM fixing in US$/ounce X Conversion factor for converting ounce into kg for 0.995 fineness X rate for US$ into INR) + Custom duty for import of gold + Sales Tax / octroi and other levies applicable.
The currency fluctuations (represented as the conversion factor above) can significantly affect the value of Gold in domestic Indian Rupees terms, and thus the performance of gold ETF
Note for Hang Seng BeES: Due to difference in time zones of different markets, in case the closing prices of Securities are not available within a given time frame to enable the AMC to upload the NAV for a valuation day, the AMC shall use the last available traded price for the purpose of valuation.
