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Written by Ranjan
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The following article has been reprinted with permission from PersonalFn In the domestic context, despite having been in existence for a while, Exchange Traded Funds (ETFs) have never quite captured the investor’s imagination. This is in contrast to the scenario in markets like the U.S. where ETFs are quite popular. ETFs do have a bit of a history in India. For example, we had a close-ended fund i.e. Morgan Stanley Growth Fund (launched in 1994) which was listed and traded on the stock exchanges. Year 2001 saw the launch of India’s first open-ended, passively-managed ETF, Nifty Benchmark Exchange Traded Scheme (Nifty BeES). Since then several ETFs of different varieties have been introduced. In this article, we discuss the investment proposition offered by ETFs and how they differ from conventional mutual funds. |
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Written by Ranjan
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The Scott Adams unified theory says that invest 70% of your money in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement. Let's check out some important data on expenses and return for the ETFs available in India |
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Written by Ranjan
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Deepak Shenoy, Co founder, Moneyoga has a very informative post on Exchange Traded Funds in his blog. He take you around the world of ETFs, how they work, the loads and how to go about buying them. |
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Written by Ranjan
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Basically, ETFs are open-ended index fund that can also be traded on the stock market.
Compared to Mutual funds, there are many advantages of ETFs, one is real time pricing, secondly long term investors are protected from short term traders. Hence it proves to be an ideal instrument for both long term as well as short term investors and also it is easy to buy and sell from the exchange. One major disadvantage of ETF is that the investor should have a demat account and a broking account.
There are two types of advantages over index funds - one is the expense ratio which is currently lower in ETFs as compared to normal index funds. The second advantage is the distribution costs- the other index funds have to pay trail commission to the broker, while ETF does not pay the same. So the ETF cost will be lower.
In addition to the above-mentioned expenses, there also exist some `hidden' costs like transaction costs. Such costs do not form a part of the expense ratio like brokerage and STT. The transaction costs however, are incurred by index funds but not by ETFs. This is another area where ETFs score over regular index funds.
ETFs don't incentivise their product, which other regular mutual funds can do, hence there is no one pushing it.
But internationally what has happened that over a period of time people have found out that ETFs are ideal instruments and it has become more popular.
Just to give an example - in the last three month if you look at the Nifty BeES, among all forty funds it was ranked 11th in the down market, which clearly shows that the ETFs/index funds are working. |
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