There are five ETFs in India at present, of which three are based on the 50-share S&P CNX Nifty index, one on the 200-share CNX Nifty Junior and the third on the 30-share Sensex.
HOW AN ETF WORKS
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 is the fastest growing mutual fund structure in the world. Globally, since the introduction in the US, in 1993, ETFs have grown rapidly with around $163 billion invested in over 291 indices (as on July 2003).
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.
India joined the ETF club in December 2001 with the launch India
