Exchange Traded Funds as an investment avenue
Exchange Traded Funds as an investment avenue
ETFs invest in a portfolio of securities, which may include international shares, fixed income securities, listed property trusts, or a combination of asset classes. Prices therefore are determined by the value of the assets the ETF holds.
As investors move in and out of ETFs, the fund issues new units or cancels them accordingly. This allows them to maintain on-market prices that correlate closely with the value of the underlying portfolio.
In 1992, the American Stock Exchange (Amex) made use of the Securities and Exchange Commission's (SEC) "SuperTrust Order" to request use of the first authorized stand-alone index based exchange-traded fund (ETF). The first U.S. listed ETF was the SPDRs (Ticker: SPY) which launched on the Amex in 1993. The fund is benchmarked to the Standard & Poors' 500 Index. Later on, ETFs based upon widely followed benchmarks like the NASDAQ-100 (Ticker: QQQQ), Dow Jones Industrial Average (Ticker: DIA) and others would follow.
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 trading 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. However, the redemption process is also different from funds. Here, the units are redeemed in kind by exchanging a basket of shares. The costs associated with these are the lowest amongst all funds.
In the US, there are 707 ETFs, with combined assets of $585.9 billion or Rs 27.5 lakh crore. ETFs are the latest and the fastest growing mutual fund products in the world. Globally, where are over 200 ETFs which have around $100 billion in assets under management.
ETFs are open-ended exchange traded funds that are designed to track specific indices and trade just like any other stock combined with benefit of a mutual fund. While ETFs are similar to index funds, they differ in many ways. ETFs can be bought and sold over the exchange through a broker on a daily basis at real-time prices unlike traditional equity funds. As they are traded on the exchange they can be bought / sold through any broker across the country thereby reaching out to a larger number of investors at the lowest possible cost. ETFs are the latest and are the fastest growing mutual fund structure in the world. Globally, since the introduction in the US, in 1993, ETFs have grown rapidly.
ETFs are different from conventional index funds in the sense that ETFs are traded throughout the day unlike index funds whose NAVs are computed. While many investors have similar outlooks, no two are exactly alike. ETFs allow long-term investors to diversify their portfolio at one shot.
As ETFs are no load schemes and annual management fees are generally lower, it is an easy and cost efficient way to invest in a basket of securities.
It provides liquidity for those investors with a shorter-term horizon as they can trade intra-day at prices near to the NAV.
Being real-time, it gives investors better control and flexibility to manage their investment. As the initial investment is low, investors find it simple and convenient to buy/sell.
Increasing investor awareness and new product launches can change the fortunes of exchange traded funds and launch of new products will make ETFs a category to watch out for. The Top Two Ways to Make Money Online The Real Secret to Quickly Start Making Money Online Watch Miley Cyrus Smoking Salvia free online Quality SEO Services - Enhanced Online Sales How Online Magazine Help Women Online Magazine To Enhance Women Lifestyle Online Paid Surveys Really Worth the Time and Effort Importance Of Online Magazines For Women Benefits Of Reading Online Womens Magazines Make Money Completing Online Surveys Online Perfumes For Men WATCH SPAIN VS NETHERLANDS FINAL FIFA WORLD CUP 2010 LIVE ONLINE STREAMING How To Get Your Presentation Top Favorited Online