EXCHANGE TRADED FUNDS

Prepared By
Pavan Pandya Jigar Jain Jinesh shah

or ETFs. are investment companies that are legally classified as open-end companies or Unit Investment Trusts.Introduction  Exchange-traded funds. Its just like as mutual fund schemes or index funds that are listed and traded on the exchange like stocks. ETFs Containing some price that can be bought or sold during the trading day. It can be bought or sold just by a call to the broker or through the internet trading account. Pavan Pandya    .

After purchasing a Creation Unit. they buy Creation Units with a basket of securities. This provides investors the power to changes in the market and place the limited orders in trading. Pavan Pandya    . an investor sells the individual shares on a secondary market. ETFs do not sell individual shares directly to investors." Investors generally do not purchase Creation Units with cash. This permits other investors to purchase individual shares instead of Creation Units. Instead. It only issue their shares in large blocks that are known as "Creation Units.

Structure of an ETF PRIMARY MARKET SECONDARY MARKET Buyer ETF Units Cash Arbitrage Authorized Participants & Large Investors Buy & Sell Market Making Exchange ETF Units Cash Creation Redemption ETF Issuer Seller .

 The first ETF traded on a U. exchange was State Street (SPY) and it is currently the most heavily-traded security in the world.A BRIEF HISTORY OF ETFs  ETFs were launched in the year of 1987 with a view to overcome the lack of liquidity and intense program trading in the market. investment styles and geographic sectors.  As the availability of ETFs in different asset classes. it made possible for investors to construct a well diversified portfolio at a very low cost.  Due to popularity of indexing in the 1990s. Pavan Pandya . ETFs soon became popular amongst individual investors and financial advisors as a transparent and liquid method of indexing.S.

FACTORS DRIVING ETF GROWTH 1 Large variety of indices of Equity. Commodity and other covered by ETFs Facilitation of investor education & trading by large broking houses Special market campaigns by on-line brokers in an effort to win new accounts and cross-sell other products Major fund platforms embracing ETFs Regulatory changes in the US. Fixed income. Europe and many emerging markets that allow funds to make larger allocations to ETFs Development and growth of investment styles that employ products like ETFs that deliver low cost beta 2 3 4 5 6 .

KEY BENEFITS OF ETF Cost Advantage Broad Market Access Broad Market Access Diversified Exposure To Market Hedging Core/Satellite Investing Buy And Hold Investing Alternative To Futures Active Trading .

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.Types of ETF  Index ETF  Commodity ETFs  Liquid ETFs  Index ETF Most ETFs are index funds that hold securities and attempt to replicate the performance of a stock market index. Jigar Jain .

such as precious metals and futures. which have been offered in a number of countries. whose unit price is derived from Money market securities comprising of government bonds treasury bonds.  Liquid ETFs Liquid ETFs are the funds. Commodity ETFs Commodity ETFs invest in commodities. Among the first commodity ETFs were gold exchange-traded funds. call money market etc. Jigar Jain . 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.

600 Assets (USD Bn) $1.400 $1.200 ETF Assets 5000 4500 4000 3500 3000 2500 2000 1500 $1.GLOBAL ETF MARKET $1.000 $800 $600 $400 $200 $0 1000 500 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 .800 $1.

the ETF can track a broader range of stocks. market segments or styles. Jinesh shah . shareholder accounting expenses at the fund level. In comparison to a stock.  Lower Fees Compared to Managed Funds Those ETFs. A mutual fund's expense ratio is usually higher due to costs such as: a management fee. have much lower expense ratios compared to other managed funds.Advantages And Disadvantages Of ETFs  Advantages  Diversification One ETF can give exposure to a group of equities. which are passively managed. or even attempt to mimic the returns of a country or a group of countries.

ETFs can be purchased on margin and sold short. so if the price is significantly higher or lower than the net asset value.  Capital Gains Tax Exposure Is Limited ETFs can be more tax-efficient than mutual funds because most of the tax on capital gains is paid on sale and completely up to the investor. Jinesh shah . Trades Like a stock Although the ETF might give the holder the benefits of diversification. it still trades like a stock. arbitrage will bring the price back in line.  Lower Discount or Premium in Price There is a lower chance of having ETF prices that are higher or lower than the actual value ETFs trade throughout the day at a price close to the price of the underlying securities.

Disadvantages  May be limited to larger CompanyIn some countries. then the costs are higher. but if you compare ETFs to investing in a specific stock. investors might be limited to large-cap stocks due to a narrow group of stocks in the market index. so they may not benefit from the intraday pricing changes.  Cost could actually be higher Most people compare trading ETFs with trading other pools of stocks. Jinesh shah .  Intraday Pricing might be overkill Longer-term investors could have a time horizon of 10 to 15 years. such as mutual funds.

Leveraged ETF Return Certain ETFs. Dividend Yield There are dividend-paying ETFs.  Jinesh shah . The risks associated with owning ETFs are usually lower. These types of speculative investments need to be carefully evaluated. then the dividend yields can be much higher. but the yields may not be as high as owning a high-yielding stock or group of stocks. which are double or triple leveraged. could result in losing more than double or triple the tracked index. but if an investor can take on the risk.

Conclusion So we can conclude that Exchange traded funds that can easily traded in the exchange market like stocks. . This provides investors the power to have a change in the market and place the limited orders in trading.

com/2009/etfs-vs-mutual-funds-five-trendsshow-that-etfs-are-winning/ http://economictimes.com/etfhome.nasdaq.com/investing/etfs/what-areETFs.com/markets/etf/ETF_faqs.indiatimes.cms   http://www.bseindia.Sources  http://etfdb.aspx  .aspx http://www.

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