>EXCHANGE TRADED FUNDS(ETFs): Introduction

Exchange traded funds are essentially straight forward products index tracking instruments, but in the hands of skill full and professional investor they become building block of sophisticated investment strategies.


Institutional use of ETFs has grown almost exponentially in India. ETFs are tracking globally, country specific and asset specific indices, covering a variety of asset classes including commodities and high-yield equities and bonds-bringing simplicity, flexibility and cost-effectiveness in their wake.


An exchange-traded fund is an investment company that offers investors a proportionate share in a portfolio of stocks, bonds, or other securities. Like individual equity securities, ETFs are traded on a stock exchange and can be bought and sold throughout the day through a broker-dealer.


Exchange-traded funds (ETFs) are a relatively recent innovation to the investment company concept. Like more traditional mutual funds and other investment company offerings, ETFs offer investors, including those
of moderate means, the opportunity to purchase shares in a diversified pool of securities at a competitive price.


Exchange-Traded Funds (ETFs) are similar to index mutual funds but are listed and traded on exchanges similar to unit investment trusts and closed end mutual funds. Unlike mutual funds, that trade only once a day at net asset value, ETFs trade at varying prices throughout the day just like stocks.


Exchange-traded funds (ETFs) have gained a wider acceptance as financial instruments whose unique advantages over mutual funds have caught the eye of many an investor. These instruments are beneficial for Investors that find it difficult to master the tricks of the trade of analyzing and picking stocks for their portfolio. Various mutual funds provide ETF products that attempt to replicate the indices on NSE, so as to provide returns that closely correspond to the total returns of the securities represented in the index. In India ETF's available on NSE are diverse lot. Equity, Debt, Gold and International Indices ETF's are available. Most ETFs charge lower annual expenses than index mutual funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.Their passive nature is a necessity: the funds rely on an arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund's holdings.


RISH TRADER