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Exchange Traded Funds

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Hi All,

Good Afternoon!

In our previous class, we have discussed some new topics

We started our discussion on *Hybrid funds*

We said, Hybrid funds fall between Debt funds and Equity funds in terms of risks and returns

We said, MIP schemes are good to meet recurring expenses such as monthly house-hold expenses, secondary pension etc.

Later, we discussed about *Balanced Funds*

We said: we can invest in these schemes in all market conditions.

Because the fund manager will do the timing of market and balance between Equity and Debt allocations.

Of course, since Balanced Funds take moderate risks, their returns will be moderate too.

There are two types of *Balanced Funds*

1. Equity-oriented Balanced Funds

2. Debt-oriented Balanced Funds

  • Equity-oriented Balanced Funds* will have 2/3 rd corpus invested in equity shares
  • Debt-oriented Balanced Funds* will have substantial portion in debt securities.
  • Capital protection-oriented* are a small variation of the balanced funds.

All these topics are discussed in last week session.

Understood them?

Let us start our topic of the day *Exchange Traded Funds* or ETFs

If you want to participate in stock market but afraid of the risks associated with stocks,

ETF is the alternative for you.

Exchange Traded funds (ETF) are a type of mutual fund schemes

But unlike traditional mutual fund schemes, the units of ETFs are traded in a stock exchange

ETFs are open-ended funds.

So you can buy and sell on the same day, just like company equity shares.

ETFs will have a tracking index.

Such as Nifty 50, BSE 100 etc.

For instance, Birla Sun Life Nifty ETF Fund, Motilal Oswal MOSt Shares M50 ETF (MOSt Shares M50) etc. tracks the Nifty index.

The performance and returns of these will be slightly similar to that of the Nifty index.

  • Tip Alert!*

In general, it is always better to invest in a mutual fund company (AMC) that is larger in size and performs well.

However, when you already invested in one or more schemes in that AMC, it is better to de-risk by not investing too much money into them.

This is where you can use smaller AMCs.

I will explain with an example

If you already invested in some schemes in Birla MF

and now you want to invest in an ETF

consider investing in MOST M50 from Motilal Oswal MF instead of investing in Birla MF.

MOST M50 returns will be same as that of BSL Nifty ETF because the underlying index is the same.

And by investing with MOST M50, you can free up and not have to overweight Birla Sunlife MF in your portfolio.

ETF is an excellent avenue for investing indirectly in Gold.

Because ETF are mutual fund schemes, it is equivalent to buying paper gold.

So this is the official and best way of *buying gold* at the right market prices.

There are several ETFs, each tracking different index. For instance Birla Sun Life Nifty ETF Fund tracks Nifty

A Midcap ETF would track NSE Midcap index

A Gold ETF tracks Gold market rates

Actually gold is a commodity

Take UTI GOLD Exchange Traded Fund for instance

It tracks the Price of Gold (international market gold values)

So, etfs will have top stocks from their respective index ryt,?

Not just top stocks but all the stocks that constitute the index.

ETFs in a way work just like index mutual funds.

Because the composition of the ETF will be similar to that of an index, such as Nifty 50, BSE 100 etc.

  • Difference between ETF and Index Mutual Fund*

ETFs are different from Index funds becuase of two reasons.

1. ETFs ae freely traded on stock exchanges.

2. In Index funds, the buy / sale will be at a single NAV price determined at the end of the day.

But in ETF, because they are listed on stock exchange, the buy and sell of units will happen depending on the buyer / seller demand.

Similar to stock trading Ryt?

Yes. ETFs can be traded on stock exchanges in a similar way we do stock trading.

What are the advantage of an ETF over other types of mutual fund schemes?

A key benefit of an ETF is that

=> investors can buy and sell their units in the stock exchange

=> at various prices during the day that closely track the market at that time.

I think no exit and enter load

Yes. They will not have any load

ETFs are cost-effective becuase the fund manager only charges for the scheme running expenses.

Since his intellience or expertise is not used, they are cheaper even compared to index funds.

Of course, the investor would have to bear a brokerage cost, demat chargest etc. when he transacts using the demat.

And if you have a discount broker who does not charge for delivery transactions, you can make a steal!

This is all i have about ETFs for today!

How does one invest in direct plans of mutual funds. Is there a online platform which one can use

For Direct plans, you can invest directly with AMC i.e the Mutual fund from the MF website

If you have invested in several mutual fund companies, you can use MyCAMS so u can have a consolidated view at

@ Vijay sir - To invest in mutual funds one needs to have demat?

No. Demat is not required for investing in Mutual funds. It is however required if you want to trade or invest in Exchange Traded Funds.

Is this have any lock-in period? somewhere I heard

It is an ETF and can be traded the moment it gets listed on stock exchanges. So no lockin period.