Exchange Traded Fund Ppt

EXCHANGE TRADED FUNDSEXCHANGE TRADED FUNDSMANAGEMENT ACCOUNTINGMANAGEMENT ACCOUNTING

Assigned by,Assigned by,Prof.Prof.

MFSM SEM-IIMFSM SEM-II2009-102009-10

PRESNTERSPRESNTERS Roll NoRoll NoALBERT ALBERT D’COSTAD’COSTA 0303

NEHA SAWANTNEHA SAWANT 3434 KALPESH PATELKALPESH PATEL 2727KASTURI PAWASKARKASTURI PAWASKAR 3131VAIBHAV THAKKARVAIBHAV THAKKAR 3939

The understandingThe understanding

Exchange-Traded Fund (ETF), is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold

ETFs represent shares of ownership of a unit investment trust (UIT), which holds portfolios of stocks, bonds, currencies or commodities.

ETFs are security certificates that state the legal right of ownership over a portion of a basket of individual stock certificates

More simpler definition :ETFs are essentially mutual fund schemes or index funds that are listed and traded on the exchange like stocks

Priced continually and can be bought or sold through out the trading day. Trading as simple as buying/Selling any other stock on the exchange

allowing the investors to take advantage of intra day price movements Does not have its net asset value (NAV) ETFs can be held in your DP account with the other portfolio holdings A vehicle combines the diversification of a mutual fund with the flexibility

of a stock

Background The first U.S. ETFs were created by State Street Global Advisors with the

launch of the S&P 500 depositary receipts, also know as SPDRs ("spiders"). Although the first ETFs tended to track broad market indexes, more recent ETFs have been developed to track sectors, fixed income, global investments, commodities and currencies.

In December 2001, India began its foray into the sphere of exchange traded funds. ETF Nifty BeES, the Nifty Benchmark Exchange-traded Scheme was the first Indian ETF launched in the country. Based on the S&P CNX Nifty Index, it was launched by the Benchmark Mutual Fund.

According to Morgan Stanley, by the end of 2007, there were 1,171 ETFs trading worldwide, with assets approaching $800 billion

ETF - Examples SPDRs iShares VIPERs Nifty BeES Bank BeES UTI Gold Exchange Traded Fund SBI Gold ETF Tata Gold ETF Liquid BeEs Gold BeEs SBI Gets

Features

Buying and Selling ETFs Can Be Good for the Small Investor

Treatment of Dividends Tax Efficiency Transparency Fees and Commissions Options

The ADVANTAGEThe ADVANTAGE

Buy and sell just like a shareBuy and sell just like a share Buy and sell at real time pricesBuy and sell at real time prices One can put limit ordersOne can put limit orders Delivery in your demat account(T+2)Delivery in your demat account(T+2) Minimum trading lot just one unitMinimum trading lot just one unit Provides DiversificationProvides Diversification No Exit LoadNo Exit Load

Returns on par with Market/IndexReturns on par with Market/Index No STT on some ETFs(Gold, Oil)No STT on some ETFs(Gold, Oil) Arbitrage in Future and Cash MarketArbitrage in Future and Cash Market Investor Advantage: All investors take Investor Advantage: All investors take

advantageadvantage Cost Advantage : The only costs for an investor Cost Advantage : The only costs for an investor

are brokerage commissions, management fees are brokerage commissions, management fees and taxesand taxes

The ADVANTAGEThe ADVANTAGE

The Dis-advantage

Investors need to have a demat and a trading Investors need to have a demat and a trading accountaccount

ETFs they have to pay a brokerage (usually ETFs they have to pay a brokerage (usually around 0.50%). This is considered high for a around 0.50%). This is considered high for a new short term Investornew short term Investor

Advantages in Local ETF disappear in Foreign Advantages in Local ETF disappear in Foreign ETFsETFs

The Working

How to Invest in ETFs How to Invest in ETFs Trading in Gold ETF is very simple.Trading in Gold ETF is very simple. It is similar to how you trade in equity shares.It is similar to how you trade in equity shares. You can trade from your existing trading account with your broker You can trade from your existing trading account with your broker

or register yourself with a broker having membership of the NSE, or register yourself with a broker having membership of the NSE, fill up the KYC form, open a demat account, post margins and then fill up the KYC form, open a demat account, post margins and then commence trading. commence trading.

Select an ETFLog into your

Trading A/c or call your NSE broker

Place an order

ETFs are in dematerialized form and settled like any other share in the T + 2 rolling settlement.

ETFs v/s Stocks & Mutual FundETFs v/s Stocks & Mutual FundFunctionalityFunctionality ETFs ETFs StocksStocks MF MF

UnitUnitReal time trading and pricing throughout Real time trading and pricing throughout market hoursmarket hours

YesYes YesYes NoNo

Ability to put limit ordersAbility to put limit orders YesYes YesYes NoNo

Can be purchase through NSE broker and/or Can be purchase through NSE broker and/or online trading a/conline trading a/c

YesYes YesYes NoNo

Can be traded real time on the NSE Can be traded real time on the NSE YesYes YesYes NoNo

Is Arbitrage possible between Futures and Is Arbitrage possible between Futures and Cash MarketCash Market

YesYes YesYes NoNo

Is Diversification possible with a single unitIs Diversification possible with a single unit YesYes NoNo YesYes

Returns at per with the market/indexReturns at per with the market/index YesYes NoNo NoNo

Intra day tradingIntra day trading YesYes YesYes NoNo

Paper Less investing Paper Less investing YesYes YesYes NoNo

Exit LoadExit Load NoNo NoNo YesYes

ETFs-Some classesETFs-Some classes Index Funds (Nifty, Junior Nifty, etc.) Bank Funds (Bank BeES, PSUBNKBEES, KOTAKPSUBK, etc. )

Gold ETF (GoldBEES, KOTAKGold,Gold Share, Rel Gold etc.)

Liquid Funds (Liquid BeES, HDFC LF, Reliance LF etc.)

Oil ETF (Oil Service HOLDRS T, United States Oil, etc)

Equity Index ETFEquity Index ETFThis is an index This is an index ETF that tracks an Index like Nifty, CNX Junior Nifty, CNX Bank Nifty that tracks an Index like Nifty, CNX Junior Nifty, CNX Bank Nifty which means that it holds the stocks in the same proportion as they are present in the which means that it holds the stocks in the same proportion as they are present in the Nifty index, Bank stocks likewise. Nifty index, Bank stocks likewise.

Equity index ETFs are funds whose unit price is derived from basket of capital market Equity index ETFs are funds whose unit price is derived from basket of capital market securities. securities.

These baskets of securities differ depending upon the nature of ETF.These baskets of securities differ depending upon the nature of ETF.

Example:-Example:-

Nifty BeES (Index ETF)Junior Nifty BeES (Index ETF)QNIFTY (Index ETF)QNIFTY (Index ETF)

S&P CNX Nifty UTI Notional Depository Reciepts Scheme (SUNDER) (Index ETF)S&P CNX Nifty UTI Notional Depository Reciepts Scheme (SUNDER) (Index ETF)

The ADVANTAGES - EIThe ADVANTAGES - EI

Buy the Index as a share.Buy the Index as a share. Real time NAV and prices close to 1/10 of the index Real time NAV and prices close to 1/10 of the index

value.value. No Hassles of margin calls (like futures).No Hassles of margin calls (like futures). Low expense ratioLow expense ratio Taxation is like a share (Long term Capital Gain is Taxation is like a share (Long term Capital Gain is

Zero & Short term is 15%.Zero & Short term is 15%. Listed & Treaded on NSE with a minimum lot size of Listed & Treaded on NSE with a minimum lot size of

1 unit.1 unit.

LISTED ETFS ON THE NSELISTED ETFS ON THE NSEETF Name NSE Symbol Underlying Index

Nifty BeEs NIFTY BEES S&P CNX Nifty Index

Junior Nifty BeEs JUNIORBEES CNX Nifty Junior Index

Banks BeEs BANKBESS CNX BANK INDEX

PSUBNKBEES PSUBNKBEES CNX PSU Bank Index

SHARIABEES SHARIABEES S&P CNX Nifty Shariah Index

S&P CNX NIFTY UTI National Depository

Receipts Sheme (SUNDER)

UTISUNDER S&P CNX NIFTY Index

KOTAKPSUBK KOTAKPSUBK CNX PSU Bank Index

RELBANK RELBANK CNX PSU Bank Index

QNIFTY QNIFTY S&P CNX NIFTY Index

GOLD ETFGOLD ETF

MEANINGMEANING Gold ETFs are units representing physical gold, which may be Gold ETFs are units representing physical gold, which may be

in paper or dematerialized form. These units are traded on the in paper or dematerialized form. These units are traded on the exchange like a single stock of any company.exchange like a single stock of any company.

USES OF GOLD FTFSUSES OF GOLD FTFS To keep Gold as part of your portfolio invest in Gold ETFS.To keep Gold as part of your portfolio invest in Gold ETFS. Accumulate Gold for social obligations buy a Gold ETF and Accumulate Gold for social obligations buy a Gold ETF and

you can sell them to purchase jewellery or other forms of gold you can sell them to purchase jewellery or other forms of gold when you desires.when you desires.

ADVANTAGS OF GOLD ETFADVANTAGS OF GOLD ETF

Price approximately equal to one gram of Gold.Price approximately equal to one gram of Gold. Backed by physical Gold holding of 0.995 purity.Backed by physical Gold holding of 0.995 purity. No wealth TaxNo wealth Tax Long term capital gains after one year.Long term capital gains after one year. No STT.No STT. No storage issues & fear of theft.No storage issues & fear of theft. Near wholesale price for buying and selling even one Near wholesale price for buying and selling even one

unit compared to huge premium for buying small unit compared to huge premium for buying small amounts of physical Gold.amounts of physical Gold.

Listed and Traded on the NSE with a minimum lot Listed and Traded on the NSE with a minimum lot size of 1.size of 1.

Gold ETFs Gold ETFs ETF Name ETF Name NSE Symbol NSE Symbol Uncerlying IndexUncerlying Index

GOLDBEES GOLDBEES GOLDSEESGOLDSEES Spot GoldSpot Gold

GOLDSHAREGOLDSHARE GOLDSHAREGOLDSHARE Spot GoldSpot Gold

KOTAKGOLDKOTAKGOLD KOTAKGOLDKOTAKGOLD Spot GoldSpot Gold

RELGOLDRELGOLD RELGOLD RELGOLD Spot GoldSpot Gold

QUANTUM GOLDQUANTUM GOLD QGOLDHALFQGOLDHALF Spot GoldSpot Gold

SBIGETSSBIGETS SBIGETSSBIGETS Spot GoldSpot Gold

Liquid ETFLiquid ETF Liquid ETFs are funds whose unit price is derived Liquid ETFs are funds whose unit price is derived

from Money market securities comprising of from Money market securities comprising of government bonds, treasury bonds, call money government bonds, treasury bonds, call money market etc.market etc.

The fund seeks to deliver reasonable through The fund seeks to deliver reasonable through portfolio of debt and money market instruments.portfolio of debt and money market instruments.

Park ideal cash between two tradesPark ideal cash between two trades Can be used as cash equivalent margin for NSE Can be used as cash equivalent margin for NSE

Cash segment and Derivative segment with 10% Cash segment and Derivative segment with 10% haircuthaircut

AdvantagesAdvantages NAV per unit is maintained at Rs. 1000/-NAV per unit is maintained at Rs. 1000/- Daily returns are passed on as dividendDaily returns are passed on as dividend The dividend after Dividend Distribution Tax The dividend after Dividend Distribution Tax

is reinvested in Unitsis reinvested in Units No STTNo STT Listed and Traded on the NSE with a Listed and Traded on the NSE with a

minimum lot size of 1minimum lot size of 1

LIQUID ETFsLIQUID ETFs

ETF NameETF Name NSE SymbolNSE Symbol Uncerlying Uncerlying IndexIndex

Liquid Be ESLiquid Be ES LIQUIDBEESLIQUIDBEES Crisil Liquid Crisil Liquid Fund IndexFund Index

Commodity ETFCommodity ETF An exchange traded fund that invests in An exchange traded fund that invests in

commodities, such as precious metals or commodities, such as precious metals or agricultural products,oil.agricultural products,oil.

commodity exchange traded funds are index funds, commodity exchange traded funds are index funds, they track non-securities indicesthey track non-securities indices

Investors can make profits from movements in a Investors can make profits from movements in a variety of commoditiesvariety of commodities

Commodity ETF is prone to short term speculationCommodity ETF is prone to short term speculation These ETFs mirror the actual price of the These ETFs mirror the actual price of the

commoditycommodity

Currency ETFCurrency ETF A A currency ETFcurrency ETF is an exchange traded fund that tracks a is an exchange traded fund that tracks a

foreign currencyforeign currency The first currency exchange traded fund was launched by The first currency exchange traded fund was launched by

Rockville, Maryland-based Rydex Investments in 2005 in Rockville, Maryland-based Rydex Investments in 2005 in New York. It was called the Euro Currency TrustNew York. It was called the Euro Currency Trust

This would appreciate in value with the strengthening of This would appreciate in value with the strengthening of the Euro against the US dollarthe Euro against the US dollar

Currency ETFs are used to gain exposure to the world’s Currency ETFs are used to gain exposure to the world’s largest financial market – the forex market.largest financial market – the forex market.

These exchange traded funds provide manufacturers the These exchange traded funds provide manufacturers the opportunity to hedge against currency lossesopportunity to hedge against currency losses

Since it is not easy to predict the direction of a currency, a Since it is not easy to predict the direction of a currency, a currency ETF is a highly risky fund.currency ETF is a highly risky fund.

OIL ETFOIL ETF An Oil Exchange Traded Fund, also referred to as Oil ETF, An Oil Exchange Traded Fund, also referred to as Oil ETF,

is an exchange traded fund that invests in companies that is an exchange traded fund that invests in companies that are engaged in the business of discovering oil and gas are engaged in the business of discovering oil and gas reserves and processing, distribution and retail of their reserves and processing, distribution and retail of their products. products.

In oil ETFs, the benchmark target might be the market In oil ETFs, the benchmark target might be the market index of oil companies or even the spot price of crude oilindex of oil companies or even the spot price of crude oil

Oil holds a highly significant position among the various Oil holds a highly significant position among the various commodities traded in the modern world. Hence, investors commodities traded in the modern world. Hence, investors view oil ETFs as an attractive optionview oil ETFs as an attractive option

Besides, oil ETFs are backed by futures contracts of crude Besides, oil ETFs are backed by futures contracts of crude oil, they enjoy high liquidityoil, they enjoy high liquidity

A few performance discrepancies have been witnessed in A few performance discrepancies have been witnessed in oil ETFs spanning short time frame making it slightly riskyoil ETFs spanning short time frame making it slightly risky

Other ETFs Bond ETFs: These ETFs invest in government bonds Actively managed ETFs: These are regularly updated ETFs and they

display their daily performance on their website Exchange-traded grantor trusts: These ETFs invest in a basket of stocks of

a particular industry Hedge Fund ETFs: These funds track a hedge fund and replicate its

financial activities Leveraged ETFs: These ETFs utilize debt and other financial derivatives to

optimize returns. Sector ETFs Sector ETFs allow investment in the stocks of different

industrial sectors. Building a portfolio with sector ETFs, versus a broad based ETF, can provide for more fine-tuning of a portfolio.

Most Important

Disclaimer

Market conditions can lead to substantial loss or Profit. Investors are advised to seek adequate product and market knowledge before investing or trading in ETFs.Every investment advice must be properly analysed before participating. The Issuer of advice should not be held responsible for any decsion taken by the investor

We, students of FY MFSM Sem II at ADMI have presented general information based on the research carried over Internet. The information may change as we progress in to future