ETF or Exchange Traded funds

ETF or Exchange Traded funds are similar to Mutual Funds. They are a basket of securities managed by an Asset Management Company (AMC) that pools small amounts of different investors and invests in an Index, sector or commodity.

ETFs are different from Mutual Funds in that they are traded on the stock exchange, whereas Mutual Funds are not traded per se. Once can buy and sell ETF like regular stocks on the stock exchange, and hence one can trade with real time prices. Mutual Funds only declare the NAV or Net Asset Value of their basket of securities at the end of the business day with end of day prices.

Some benefits of ETF are:

1. Can be traded on stock exchange intra day
2. Have low expense ratios, as they invest in Index or commodities and do not change portfolio composition
3. They are more liquid as can be sold at any time
4. Have lower tracking error, i.e., follow their index closely and mimic the returns also closely
5. They are available across all asset classes – Equity Index, Bond Index (Govt, PSU, Corporate), Currency, Gold,
6. Helps spread the risk, as the Fund Manager manages assets across different companies/industires
7. Some popular ETFs are –
   1. Nifty BEeS – Index on shares in Nifty50 Index
   2. Bank Bees – Index on shares in Bank Nifty Index
   3. Bharat Bond ETF – Index on PSU companies debt Index
   4. Gold ETF
   5. Gilt ETF
   6. Liquid ETF