NAME : JAIN SONAL

ROLL NO. : 26 (FIN)

SUBJECT : STOCK EXCHANGE AND PORTFOLIO MANAGEMENT

SUBMITED TO : MRUNAL SIR.

ETFs are mutual funds that trade like a stock

Exchange Traded Fund (ETF)

– Simplicity

– Transparency

– Risk control

– Diversification

– Open-End Fund

Stock:

– On Exchange

– Trading flexibility

– Trading strategies

+

MUTUAL FUND STOCK

EXCHANGE TRADED FUND

3

4

Redemption

PRIMARY MARKET SECONDARY MARKET

Authorized Participants & Large

Investors

ETF Issuer

Buyer

Exchange

Seller

Buy & Sell

Market Making

Arbitrage

Creation

Cash E

TF

Units

Cash E

TF

Units

* Creation & Redemption of ETF units is done only in integral multiples of creation units.

do not sell or redeem their individual shares at net asset value (NAV). Instead, financial institution purchase and redeem ETF shares directly from the ETF, but only in large blocks varying in size from 25,000 to 200,000 shares, called creation units. Purchases and redemptions of the creation units generally are in kind , with the institutional investor contributing or receiving a basket of securities of the same type and proportion held by the ETF

6

Market Value or Fair Value of Schemes Investments

Net Current Assets (including accrued expenses)

+

Number of Units Outstanding as on Valuation Date

NAV (INR) =

Two primary features of an ETF’s structure promote trading of an ETF’s shares at a price that approximates the ETF’s underlying value:

portfolio transparency

the ability for authorized participants to create or redeem ETF shares at net asset value (NAV) at the end of each trading day.

Index ETF

Commodity ETFs

Liquid ETFs

Most ETFs are index funds that hold securities and attemptto replicate the performance of a stock market index.

An index fund seeks to track the performance of an indexby holding in its portfolio either the contents of the indexor a representative sample of the securities in the index.

Commodity ETFs invest in commodities, such as preciousmetals.

first commodity ETFs were gold exchange-traded funds,which have been offered in a number of countries. The ideaof a Gold ETF was first officially conceptualized byBenchmark Asset Management Company Private Ltd in Indiawhen they filed a proposal with the SEBI in May 2002.

Liquid ETFs are funds whose unit price is derived fromMoney market securities comprising of government bondstreasury bonds, call money market etc, ETFs are immediatelytradable; therefore, the risk of price movement betweeninvestment decision and time of trade is substantially lesswhen ETFs are used in lieu of traditional funds.

Buy and sell just like a share

Buy and sell at real time prices

Like an index fund, they are very transparent

Cost Advantage : The only costs for an investor are brokerage

commissions, management fees and taxes

Minimum trading lot just one unit

Provides Diversification

Arbitrage in Future and Cash Market

They have to pay a brokerage (usually around 0.35% to .99% ). This is

considered high for a new short term Investor.

Advantages in Local ETF disappear in Foreign ETFs.

Have to place a fresh order every month.

You can't automatically re-invest your dividends.

Difference between Stocks,

Mutual Funds & ETFs

ETFs V/S Stocks and Mutual Fund

Functionality ETFs Stocks Mutual Funds Unit

Can be purchase through NSE

broker or online trading account

Yes Yes No

Ability to put limit orders Yes Yes No

Real time trading and pricing

throughout market hours

Yes Yes No

Returns at par with the

market/index

Yes No No