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Exchange Traded Funds

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An exchange traded fund (ETF) is essentially an index fund that trades like a stock  and is listed on the exchange. Although popular abroad, it’s still a new concept in India. Currently, India has 16 ETFs, with total assets under management of Rs 4,182 crore as of September 2008. In the US, by contrast, there are 707 ETFs, with combined assets of $585.9 billion or Rs 27.5 lakh crore. 


An ETF is a single security representing a basket of stocks that corresponds to a particular index, say, the S&P CNX Nifty or Sensex. The ETFs trading value is based on the net asset value of the underlying stocks that it represents . Much like an index fund, an ETF offers built-in diversification . But because ETFs can be bought or sold within the trding day, they offer the flexibility of a stock. Like individual equity securities, ETFs are traded on a stock exchange and can be bought and sold throughout the day through a broker-dealer , just like Infosys or Reliance Industries shares. 

Types of ETFs 

ETFs can be broadly classified into index, commodity, and bond funds. 

Most ETFs are index funds that hold securities and attempt to replicate the performance of a stock market index. An index fund seeks to track the index’s performance by holding either the contents of the index, or a representative sample of securities in the index. 

Commodity ETFs invest in commodities such as precious metals and futures. In India, we only have gold ETFs

As for bond ETFs, there is currently only one available in India, namely Liquid BeES. 

There are other types of ETFs, such as currency ETFs and actively managed ETFs but they are not yet available in India. 

No investment is perfect, but ETFs offer a  broad range of benefits. They’re easy to trade, they offer diversification and depending on your situation, they might just be an attractive alternative to mutual funds and other investments.

Exchange Traded Funds (ETFs) are quickly becoming an alternative to mutual funds.

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