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Exchange Traded Funds (ETFs) – Index Tracking

Introduction

An ETF is a basket of securities that trades on the stock exchange like a single share. It combines the best features of Mutual Funds (Diversification) and Stocks (Real-time trading).

1. How it works

  • Index ETF: The fund buys all 50 stocks of NIFTY in the same weightage.
  • Passive: No fund manager bias. It simply mimics the index.
  • Trading: Unlike MF (where you get NAV at day end), ETFs can be bought/sold anytime during market hours (9:15 to 3:30).

2. Advantages

  1. Low Cost: Since it's passive, expense ratio is very low (< 0.1%).
  2. Liquidity: Instant selling on exchange.
  3. Transparency: You know exactly what stocks it holds (Mirror of Index).

3. Popular ETFs in India

  • NIFTYBEES: Tracks Nifty 50.
  • GOLDBEES: Tracks Gold prices.
  • Liquid ETFs: For parking cash.

Summary

  • Hybrid: MF structure + Stock trading.
  • Style: Passive (Index tracking).
  • Cost: Very cheap.

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