ETFs: a lucrative investment opportunity.


Bangalore:EXCHANGE-traded funds (ETFs) is buzz word in the mutual product fund segment in India, has given new terminology to value proposal for investors.ETFs are mutual funds that are available only through exclusive medium of stock exchanges.The underlying asset of an ETF can be any tradable asset: be it stock, commodity, bonds and currency. Currently, in the Indian context, only stock ETFs and gold ETFs have received the regulator and the investor acceptability. Sandesh Kirkire Of economic times in his article says,The underlying asset of an ETF can be any tradable asset: be it stock, commodity, bonds and currency. Currently, in the Indian context, only stock ETFs and gold ETFs have received the regulator and the investor acceptability. ETFs provide a real time price discovery for investors and relegate the investment effort to a click of a button. Additionally, the cost of investment is far reduced, and therefore provides an inherent growth advantage vis-à-vis other funds. Additionally, many ETFs also provide a passive exposure to assets that otherwise would be out of reach for most investors. Albeit, even actively managed funds are readily available through ETFs. ETFs, since they are traded on the stock exchange, are subject to the same cost which are applicable to share trading, i.e,: brokerage, STT, demat cost (if any) etc. In turn, ETF units are only managed by the funds, (actively or passively) and as such invite a lower ‘expense ratio’ from asset management companies (AMCs). Therefore, the cost of purchasing ETF units is directly dependent on the frequency of entry and exit, as well as the size of acquisition. On the other hand, the entire corpus of a regular mutual fund (most of the time) invites the same cost, irrespective of the size of individual holdings. The convenience of acquiring, holding and divesting ETFs are also a key feature that make them stand out from the rest. Since ETFs are traded like the stock, the acquisition, valuation and disposal of the investment is real time. Moreover, the price discovery largely tends to be precise, rather than on the end of day basis. This facilitates the investor to utilise the price variations in the underlying asset in a relatively sharp detail and time. Investors can also carry out other features of stock investment in ETFs that is otherwise not feasible in a regular fund. Namely, day trade, short sell, limit order and a potentiality to buy and sell a stock in a single unit. In the present market context, wherein the market has approached its 2008 peak level, the ease and accessibility of ETFs may come in handy in managing the emerging investment environment. A volatile geopolitical setup, an increasingly chary global economy and the rising demand for gold jewellery in India and China are some of the reasons that make investment in gold ETFs a lucrative investment opportunity.