| etf | 40,500 |
| exchange traded fund | 40,500 |
| etf mutual fund | 1,300 |
ETF is the fastest growing category of mutual funds in India. In the last 3 years assets under management (AUM) in ETFs grew at a compounded annual growth rate of (CAGR) 45% (source: AMFI). In this piece of the content, we will discuss about ETF or exchange traded fund and how to invest in ETF mutual fund.
What is Exchange Traded Funds?
ETFs are passive mutual fund schemes which invest in a basket of securities that track a market index or the price of a commodity (e.g. gold, silver). ETFs do not aim to beat the index returns, they simply track the index i.e. endeavour to generate the same returns as that of the index. ETFs are listed on stock exchanges and trade like company shares. The two main advantages of exchange traded funds are no unsystematic risk and lower cost compared to actively managed mutual fund schemes.
How to invest in ETF?
Investors need to have demat and trading accounts to invest in ETF mutual fund or ETF. If you do not have demat and trading accounts, you need to open one with a stockbroker. There are two ways of investing in ETF – through your stockbroker or directly with the Asset Management Company (AMC).
How to invest in ETFs through your stockbroker?
During the NFO period, you can buy units of exchange traded funds at par value. After the NFO period, you will have to buy ETF units in stock exchanges in your demat. ETF transactions in stock exchange take place on the basis of the market price (ask / offer price) just like stocks. The market price of the ETF may be different from the NAV.
How to invest in ETFs through the AMC?
During the NFO period, you can buy units of ETF mutual funds at par value. You will have to provide details of your demat account as the ETF units can be stored in demat form only. After the NFO period, you can buy units directly from AMC at prevailing NAVs, if you are transacting in lot sizes (also known as creation units) as specified by the AMC. Usually, the lot size of a ETF is much larger than the average investment size of a retail mutual fund investor.
How to sell / redeem ETFs?
You will have to sell your exchange traded funds or ETF units in the stock exchange at market prices (bid price) unless you are transacting in lot sizes (creation units) with the AMC. The price at which you sell your ETF mutual fund units in the stock exchange can be different from the actual NAV. You should refer to the scheme information document to know the lot size (creation units) of your ETF.
ETFs are popular in developed markets and are also gaining in popularity in mutual funds India. ETFs are different from other mutual funds in a sense that, you will have to buy / sell ETFs in stock exchanges unless you are transacting in lot sizes.
