EXCHANGE TRADED FUNDS

MANAGEMENT ACCOUNTING
Assigned by,
Prof.

MFSM SEM-II
2009-10

PRESNTERS Roll No
ALBERT D’COSTA 03
NEHA SAWANT 34
KALPESH PATEL 27
KASTURI PAWASKAR 31
VAIBHAV THAKKAR 39
 The understanding
Exchange-Traded Fund (ETF), is a security that tracks an index, a commodity or a
basket of assets like an index fund, but trades like a stock on an exchange, thus
experiencing price changes throughout the day as it is bought and sold

ETFs represent shares of ownership of a unit investment trust (UIT), which holds
portfolios of stocks, bonds, currencies or commodities.

ETFs are security certificates that state the legal right of ownership over a portion of a
basket of individual stock certificates

More simpler definition :ETFs are essentially mutual fund schemes or index funds that
are listed and traded on the exchange like stocks

 Priced continually and can be bought or sold through out the trading day.
 Trading as simple as buying/Selling any other stock on the exchange
allowing the investors to take advantage of intra day price movements
 Does not have its net asset value (NAV)
 ETFs can be held in your DP account with the other portfolio holdings
 A vehicle combines the diversification of a mutual fund with the flexibility of
a stock
 Background
 The first U.S. ETFs were created by State Street Global Advisors with the
launch of the S&P 500 depositary receipts, also know as SPDRs
("spiders"). Although the first ETFs tended to track broad market indexes,
more recent ETFs have been developed to track sectors, fixed income,
global investments, commodities and currencies.

 In December 2001, India began its foray into the sphere of exchange traded
funds. ETF Nifty BeES, the Nifty Benchmark Exchange-traded Scheme
was the first Indian ETF launched in the country. Based on the S&P CNX
Nifty Index, it was launched by the Benchmark Mutual Fund.

 According to Morgan Stanley, by the end of 2007, there were 1,171 ETFs
trading worldwide, with assets approaching $800 billion
 ETF - Examples
 SPDRs
 iShares
 VIPERs
 Nifty BeES
 Bank BeES
 UTI Gold Exchange Traded Fund
 SBI Gold ETF
 Tata Gold ETF
 Liquid BeEs
 Gold BeEs
 SBI Gets
 Features
 Buying and Selling ETFs Can Be Good for
the Small Investor
 Treatment of Dividends
 Tax Efficiency
 Transparency
 Fees and Commissions
 Options
 The ADVANTAGE
 Buy and sell just like a share
 Buy and sell at real time prices
 One can put limit orders
 Delivery in your demat account(T+2)
 Minimum trading lot just one unit
 Provides Diversification
 No Exit Load
 The ADVANTAGE

 Returns on par with Market/Index

 No STT on some ETFs(Gold, Oil)
 Arbitrage in Future and Cash Market
 Investor Advantage: All investors take
advantage
 Cost Advantage : The only costs for an investor
are brokerage commissions, management fees
and taxes
 The Dis-advantage
 Investors need to have a demat and a trading
account
 ETFs they have to pay a brokerage (usually
around 0.50%). This is considered high for a
new short term Investor
 Advantages in Local ETF disappear in Foreign
ETFs
The Working
 How to Invest in ETFs
 Trading in Gold ETF is very simple.
 It is similar to how you trade in equity shares.
 You can trade from your existing trading account with your broker
or register yourself with a broker having membership of the NSE,
fill up the KYC form, open a demat account, post margins and then
commence trading.

Log into your

Select an ETF Trading A/c or call Place an order
your NSE broker

ETFs are in dematerialized form and settled like any other

share in the T + 2 rolling settlement.
 ETFs v/s Stocks & Mutual Fund
Functionality ETFs Stocks MF
Unit
Real time trading and pricing throughout Yes Yes No
market hours
Ability to put limit orders Yes Yes No
Can be purchase through NSE broker and/or Yes Yes No
online trading a/c
Can be traded real time on the NSE Yes Yes No

Is Arbitrage possible between Futures and Yes Yes No

Cash Market
Is Diversification possible with a single unit Yes No Yes
Returns at per with the market/index Yes No No
Intra day trading Yes Yes No
Paper Less investing Yes Yes No
Exit Load No No Yes
 ETFs-Some classes
 Index Funds (Nifty, Junior Nifty, etc.)
 Bank Funds (Bank BeES, PSUBNKBEES, KOTAKPSUBK, etc. )
 Gold ETF (GoldBEES, KOTAKGold,Gold Share, Rel Gold etc.)
 Liquid Funds (Liquid BeES, HDFC LF, Reliance LF etc.)
 Oil ETF (Oil Service HOLDRS T, United States Oil, etc)
 Equity Index ETF
This is an index ETF that tracks an Index like Nifty, CNX Junior Nifty, CNX Bank Nifty
which means that it holds the stocks in the same proportion as they are present in the
Nifty index, Bank stocks likewise.

Equity index ETFs are funds whose unit price is derived from basket of capital market
securities.

These baskets of securities differ depending upon the nature of ETF.

Example:-

Nifty BeES (Index ETF)

Junior Nifty BeES (Index ETF)
QNIFTY (Index ETF)

S&P CNX Nifty UTI Notional Depository Reciepts Scheme (SUNDER) (Index ETF)
 The ADVANTAGES - EI
 Buy the Index as a share.
 Real time NAV and prices close to 1/10 of the index
value.
 No Hassles of margin calls (like futures).
 Low expense ratio
 Taxation is like a share (Long term Capital Gain is
Zero & Short term is 15%.
 Listed & Treaded on NSE with a minimum lot size of
1 unit.
 LISTED ETFS ON THE NSE
ETF Name NSE Symbol Underlying Index
Nifty BeEs NIFTY BEES S&P CNX Nifty Index

Junior Nifty BeEs JUNIORBEES CNX Nifty Junior Index

Banks BeEs BANKBESS CNX BANK INDEX

PSUBNKBEES PSUBNKBEES CNX PSU Bank Index

SHARIABEES SHARIABEES S&P CNX Nifty Shariah
Index
S&P CNX NIFTY UTI UTISUNDER S&P CNX NIFTY Index
National Depository
Receipts Sheme
(SUNDER)
KOTAKPSUBK KOTAKPSUBK CNX PSU Bank Index

RELBANK RELBANK CNX PSU Bank Index

QNIFTY QNIFTY S&P CNX NIFTY Index

 GOLD ETF
MEANING
 Gold ETFs are units representing physical gold, which may be
in paper or dematerialized form. These units are traded on the
exchange like a single stock of any company.
USES OF GOLD FTFS
 To keep Gold as part of your portfolio invest in Gold ETFS.
 Accumulate Gold for social obligations buy a Gold ETF and
you can sell them to purchase jewellery or other forms of gold
when you desires.
 ADVANTAGS OF GOLD ETF

 Price approximately equal to one gram of Gold.

 Backed by physical Gold holding of 0.995 purity.
 No wealth Tax
 Long term capital gains after one year.
 No STT.
 No storage issues & fear of theft.
 Near wholesale price for buying and selling even one
unit compared to huge premium for buying small
amounts of physical Gold.
 Listed and Traded on the NSE with a minimum lot
size of 1.
 Gold ETFs
ETF Name NSE Symbol Uncerlying Index

GOLDBEES GOLDSEES Spot Gold

GOLDSHARE GOLDSHARE Spot Gold

KOTAKGOLD KOTAKGOLD Spot Gold

RELGOLD RELGOLD Spot Gold

QUANTUM GOLD QGOLDHALF Spot Gold

SBIGETS SBIGETS Spot Gold

 Liquid ETF
 Liquid ETFs are funds whose unit price is derived
from Money market securities comprising of
government bonds, treasury bonds, call money
market etc.
 The fund seeks to deliver reasonable through
portfolio of debt and money market instruments.
 Park ideal cash between two trades
 Can be used as cash equivalent margin for NSE
Cash segment and Derivative segment with 10%
haircut
Advantages
 NAV per unit is maintained at Rs. 1000/-
 Daily returns are passed on as dividend
 The dividend after Dividend Distribution Tax
is reinvested in Units
 No STT
 Listed and Traded on the NSE with a
minimum lot size of 1
 LIQUID ETFs
ETF Name NSE Symbol Uncerlying
Index
Liquid Be ES LIQUIDBEES Crisil Liquid
Fund Index
 Commodity ETF
 An exchange traded fund that invests in
commodities, such as precious metals or
agricultural products,oil.
 commodity exchange traded funds are index funds,
they track non-securities indices
 Investors can make profits from movements in a
variety of commodities
 Commodity ETF is prone to short term speculation
 These ETFs mirror the actual price of the
commodity
 Currency ETF
 A currency ETF is an exchange traded fund that tracks a
foreign currency
 The first currency exchange traded fund was launched by
Rockville, Maryland-based Rydex Investments in 2005 in
New York. It was called the Euro Currency Trust
 This would appreciate in value with the strengthening of
the Euro against the US dollar
 Currency ETFs are used to gain exposure to the world’s
largest financial market – the forex market.
 These exchange traded funds provide manufacturers the
opportunity to hedge against currency losses
 Since it is not easy to predict the direction of a currency, a
currency ETF is a highly risky fund.
 OIL ETF
 An Oil Exchange Traded Fund, also referred to as Oil ETF,
is an exchange traded fund that invests in companies that
are engaged in the business of discovering oil and gas
reserves and processing, distribution and retail of their
products.
 In oil ETFs, the benchmark target might be the market
index of oil companies or even the spot price of crude oil
 Oil holds a highly significant position among the various
commodities traded in the modern world. Hence, investors
view oil ETFs as an attractive option
 Besides, oil ETFs are backed by futures contracts of crude
oil, they enjoy high liquidity
 A few performance discrepancies have been witnessed in
oil ETFs spanning short time frame making it slightly risky
 Other ETFs
 Bond ETFs: These ETFs invest in government bonds
 Actively managed ETFs: These are regularly updated ETFs and they
display their daily performance on their website
 Exchange-traded grantor trusts: These ETFs invest in a basket of stocks of
a particular industry
 Hedge Fund ETFs: These funds track a hedge fund and replicate its
financial activities
 Leveraged ETFs: These ETFs utilize debt and other financial derivatives to
optimize returns.
 Sector ETFs Sector ETFs allow investment in the stocks of different
industrial sectors. Building a portfolio with sector ETFs, versus a broad
based ETF, can provide for more fine-tuning of a portfolio.

 Most Important
Disclaimer

Market conditions can lead to substantial loss or Profit. Investors

are advised to seek adequate product and market knowledge
before investing or trading in ETFs.
Every investment advice must be properly analysed before
participating. The Issuer of advice should not be held responsible
for any decsion taken by the investor

We, students of FY MFSM Sem II at ADMI have presented

general information based on the research carried over Internet.
The information may change as we progress in to future