Different Types of ETF In India, Meaning, ETF Vs Mutual Funds, Types of ETF, Bharat 22 ETF (100% Powerful Knowledge)

Key Highlights: Different Types of ETF In India

  • The ETF Full Form is Exchange Traded Funds.
  • ETF are basically mutual funds which are listed on Stock Exchanges.
  • Their buying and selling is also done like the shares listed in the stock exchanges.
  • ETF can also be bought and sold at prevailing market prices on real time basis during market hours.
  • The objective of ETFs is to provide an investor with an opportunity to invest in multiple assets in real time at a low cost. In Our Blog we would learn different types of etf in india, etf meaning, we also understand etf vs mutual fund.

ETF Definition & Overview:

Basically An exchange-traded fund offers the investor a basket of different securities, ranging from traditional stocks and bonds to more modern securities such as currencies and commodities. An investor can buy or sell his shares of the ETF through a broker. ETFs are traded on the stock market. One Index is being copied by  ETF and it tries to reflect its accurate performance. Index ETF It is created by institutional investors by swapping stocks in an index basket. ETF Originally only tracking the market, but in recent years they have been working to track various asset classes as well.

In This Article We cover all the relevant details of ETF Full Form and other aspects:

ETF Full Form
ETF Full Form : Know every details of ETF

Functioning of ETF: Different Types of ETF In India

After knowing the definitions now let us see how ETFs works

The Fund Provider that owns the underlying assets designs a fund to track the fund’s overall performance. Then they sell shares of this ETF to investors. The investor holds a percentage of the ETF but does not own the assets that comprise the ETF. Investors get reinvestment or dividends from the stocks included in the ETF.

The number of shares of an ETF can change daily as it can issue new shares as well as redeem existing shares. This helps keep the market price of the ETF more or less in line with the underlying securities.

When you buy a mutual fund, the AMC takes money from you, invests it in a variety of securities and then tells you the NAV of the fund at the end of the day. Similarly, when you redeem a mutual fund, the AMC gives you the money by selling the securities. But when you buy ETFs, you generally do not have any interaction with the AMC. You buy or sell ETFs directly on the exchange. Means there is a transaction between two investors.

Difference between ETF and Mutual Funds

ETF VS Mutual Fund

The Meaning of ETF makes us think that they are similar, but look at the difference between them:

 

S.No. ETF (Exchange Traded Fund) Mutual Funds
1 Can be traded throughout the trading day Can only be bought or sold after the market closes for the day
2 An ETF is generally passively managed by the manager as it usually tracks a market index A Mutual Fund is actively managed with an expert fund manager, who keeps track of when to buy or sell certain assets in order to make a profit.

 

3 An ETF has a relatively low fee and expense ratio as it can be managed passively Mutual Funds which need to be actively managed and hence come with higher fees.

 

4 In terms of taxes, An ETF investor has to pay taxes only when they sell their holdings In a Mutual Fund, an investor has to pay taxes throughout their ownership chain.

 

 

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Difference Between ETF and Index Fund

ETF VS Index Fund

 

S.No. ETF (Exchange Traded Fund) Index Funds
1 In most cases, the investment in ETFs is very low as compared to index funds. The reason is that they are traded like stocks and are bought as whole shares. This means that you can buy an ETF for only one share price, which is known as the ETF market price. But if you talk about index funds, brokers rarely offer a price slightly higher than the price of any common stock. So, if you are planning to invest a minimum amount, always choose ETFs over index funds with their own share price
2 ETF offers tax benefits as compared to index funds, and the credit goes to its structure. This means that if you plan to assign the ETF to another investor, the money will come directly from that investor. In short, the capital gains tax will be on you with the sale of the ETF. But in index funds the owner has to redeem this cash directly from the manager and they will take your securities to create money for you. In this process, the net profit is passed on to each investor who holds shares in your fund. This means, you will not get capital gain money without selling a single share. Overall, ETFs provide advantages over index funds.
3 It means that with this you can get the minimum amount of 0.05% more than the total investment amount annually. But there is another cost you have to pay while buying ETFs and index funds in trading commission. But, if you are interested in ETFs, the broker will charge some fee as commission for trading while buying or selling ETFs, which will come back again if you trade regularly. No doubt, in case of index funds, you will also have to pay some transaction charges while buying or selling, but there is a difference in cost, which you need to consider before choosing. In short, both are low cost options as compared to other mutual funds, but you need to compare the expense ratios of both before choosing one.

 

Types of ETF: Different Types of ETF In India

There are different types of ETFs in which you can invest depending on your needs.

  1. Bank:

A Bank ETF is comprised of stocks from banks that are listed in the index the ETF follows. Such ETFs are quite volatile and have high liquidity. A bank ETF is known to be easily tradable on margin.

  1. Liquid

A liquid ETF is traded only on national exchanges like BSE and NSE. It is known for its low risk return as well as high liquidity. The investment basket consists of short term government securities, call money and instruments with shorter maturities.

3.International

For any investor looking to invest in internationally based securities, be it a foreign company or currency, this type of ETF is a good option. An international ETF helps create a more diversified portfolio because it can contain hundreds of companies spread across the globe. The investor can select these types of ETFs based on geography, market capitalization, sector, or any other criteria they deem appropriate. If you’re considering international ETFs, be sure to understand the attached fees, taxes, liquidity, trading volume and portfolio details before investing.

  1. Commodities

Here, the ETF consists of one or more commodities, including agricultural commodities, natural resources, or precious metals. The investor does not own the physical item. Examples of commodity ETFs include the SPDR S&P Oil & Gas Exploration and Production ETF, and the ISARS MSCI Global Agriculture Producers ETF.

  1. Gold

A gold ETF falls under ‘commodity ETFs’, but it is such a widely traded ETF, that it deserves its own space. This type of ETF is a good option for those who believe that gold is always a reliable investment but do not want to buy a lot of physical gold. A gold ETF allows one to invest through Systematic Investment Plans (SIPs). The price of the ETF works in tandem with the price of physical gold; If the price of physical gold increases, the value of the ETF will also increase.

6.Stock

Stock ETFs constitute only stocks and not any other securities. They are generally very well suited for an investor looking for a long term investment. They are less risky and come with lower fees than individual stocks.

  1. Bond

Bond ETFs are comprised of individual bonds, making a common maturity date impossible. The purpose of a bond ETF is to provide the investor with regular cash payments generated from the interest on individual bonds. Bond ETFs complement a stock ETF well and are less risky.

  1. Sector

A sector-specific ETF means a basket of securities that will focus on only one industry such as healthcare. It is a good idea to have someone who is an expert in the sector and can safely predict the performance of the sector. However, a sector ETF can be risky because it offers limited diversification options.

Note:

While choosing a particular ETF, it is necessary to have some working knowledge about the ETF you are investing in so that you can keep track of it.

Pros and Cons of ETFs:

Like any other investment vehicle, an ETF has its pros and cons.

ETF Advantages :

  1. ETFs provide some of the best diversification. You can invest not only in multiple companies at once, but also across different industries or global markets.
  2. You can trade in ETFs like any other stock during market hours, ensuring that you can act swiftly based on market news, local and global events.
  3. Advanced trading mechanisms are possible on such margin as buy, limit or stop orders.
  4. ETFs allow minimum investment which means even beginner investors or people with small savings can invest.
  5. An ETF provides transparency. Your ETF will disclose its ownership at the end of each day, and you can hedge and assure yourself of the value of the underlying assets to you.

 ETFs Disadvantages:

  1. There may be a significant trading commission charged by the broker on your trades. This can eat into your profits. However, more and more brokers are waiving this fee to keep up with changing protocols.
  2. Selling an ETF can be difficult if it is not traded frequently.
  3. If the ETF does not have enough assets that can meet the administrative costs, it may be closed. This may lead to you selling your shares earlier than you intended, and at a loss. There’s also the risk of a tax liability that you didn’t anticipate at the time.

However, the benefits of an ETF far outweigh the cons associated with it. Make sure you do your research and seek the guidance of a professional before investing.

ETF In India

India has come a long way since way back in 2001, ETFs were first permitted in the country. Today, there are tens of ETFs that track several major indices in India and abroad, such as the Nifty 50, Sensex, S&P 500, or NASDAQ. India has a booming IT, finance and healthcare sector which boosts the economy and opens doors for profitable ETFs. Additionally, increased digitization, thrust on expanding middle-income groups, boom in electronic payment platforms are all that provide a boost to the economy.

India is a promising country with several ETF options for the discerning investor. ETFs are known for their innovation. If you think ETFs are the best form of investment, do your due diligence to find out which ETFs are best suited to help you meet your financial goals. Once you are confident enough with your options, ask your broker to execute the trade for you.

Bharat 22 ETF:
  • Recently launched Bharat 22 ETF. Selected PSUs to Govt. ETF as permitted to be preserved. Under this, the government can raise money from investors through disinvestment.
  • This specially created S.&P. BSE It is manufactured to track the Bharat 22 Index, which is managed by Asia Indices Private Limited.
  • This index is for 22 PSUs. Formed from some private sector companies with shares.
  • ETF aims to raise an initial amount of Rs.8000 crores.
  • 25 percent units of the scheme will be allotted to each category of investors.
  • This ETF In India, retirement fund investors have been kept in a separate category. In case of expansion, the additional portion will be allocated to retail and retirement funds with priority given to them.
  • There will be a discount of 3 percent for all investors. Shares have been taken by the government in 6 sectors of the economy – finance, industry, energy, utilities, consumer goods and basic materials. This cohesion makes the index broad and diverse.
  • The index constituents include Maharatna and Nauratna companies such as – Coal India, GAIL, Power Grid Corporation of India Limited (PGCIL), National Thermal Power Corporation (NTPC), Indian Oil Corporation, Oil and Natural Gas Corporation (ONGC), Bharat Petroleum and National Aluminum Company (NALCO), Public Sector Banks – State Bank of India, Bank of Baroda and the above three private sector companies.
Why ETF is important?
  • ETF are cost effective. Since they do not make any stock (or security options), they also do not use the services of star fund managers.
  • Nifty 50 and Sensex 30 ETFs in India. Charge an annual expense fee of 0.05 to 1% of your Net Asset Value (NAV), while actively managed funds charge 2.5-3.25% a year.
  • Apart from the costs, ETFs are currently a hot favorite among global investors.
  • T.F. Allows investors to avoid the risk of poor security selection by the fund manager while offering a diversified investment portfolio.
  • Another reason is that not only are the stocks in the index carefully selected by the index providers, they are also rebalanced from time to time.
  • T.F. Offer any time liquidity through exchanges.
Conclusion:Different Types of ETF In India

ETF can be bought instantly from the market and now SIP can also be done to invest in it every month. Before buying ETF, do due diligence, do not buy blindly. There is a problem of liquidity in ETFs because its market is small in the country right now, so keep this in mind before buying and selling ETFs.

Always buy ETFs with limit orders and before buying or selling, compare its price with Intraday or Indicative NAV (iNAV). The iNAV of an ETF can be found from the website of that AMC. Sometimes the iNAV on the website of the AMC may be incorrect. If the difference between price and iNAV is too high, it is a red flag, check again. If the difference between the price and iNAV is significant, compare the price with the underlying index or ask the AMC. Investing in ETFs of large caps and mid caps is a better option than index funds of large caps and mid caps.

Friends, hope I have explained all the relevant details of ETF Full Form, ETF Meaning and other relevant topic. How did you like our post, if you want to give any suggestion kindly comment in the comment box, we try to improve our blog.

FAQ on ETF Full Form:

1.How to buy ETF

You Need to have a brokerage account for buying and selling securities.

Find a screener on web from where you will get ETF option to buy.

Place the trade.

2.Do you get dividend from ETF.

Not exactly.

3.Can anyone buy or sold ETF anytime.

During the Market hours you can buy or sell anytime like a stock.

4.ETF Full Form

Exchange Traded Fund.

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