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FAQ's on Exchange Traded Funds (ETF)

  1. What are Exchange Traded Funds ?

    Exchange Traded Fund is a security that tracks an index, a commodity or a sector like an index fund or a sectoral fund but trades like a stock on an exchange. It is similar to a close-ended mutual fund listed on stock exchanges. ETF's experience price changes throughout the day as they are bought and sold.

  2. What types of ETF's can be traded in BSE?

    Currently there are three types of ETF's which can be traded in BSE. These are :
    • Equity ETF's.
    • Gold ETF's.
    • Liquid ETF's.


  3. What are Equity ETF's ?


    4. Equity ETF is a basket of stocks that reflects the composition of an Index, like S&P CNX Nifty or BSE Sensex. The ETFs trading value is based on the net asset value of the underlying stocks that it represents. Think of it as a Mutual Fund that you can buy and sell in real-time at a price that changes throughout the day. Currently there are eleven equity ETF's which can be traded in BSE.

  4. What are Gold ETF's ?

    Gold ETF is a special type of Exchange traded fund that tracks the price of gold. Currently there are six gold ETF's which can be traded in BSE.

  5. What are Liquid ETF's ?

    Liquid ETF's are the money market ETF's, the investment objective of which is to provide money market returns. Liquid BeES launched by benchmark mutual fund is the first money market ETF in the world. Liquid BeES will invest in a basket of call money, short-term government securities and money market instruments of short and medium maturities.

  6. How does one trade ETF's ?

    ETF's can be bought / sold just like stocks through trading terminals anywhere across the country.

  7. Difference between a Exchange Traded Fund & Mutual Funds (Close Ended Fund and Open Ended Fund) ?

    Parameter Open Ended Fund Closed Ended Fund Exchange Traded Fund
    Fund Size Flexible Fixed Flexible
    NAV Daily Daily Real Time
    Liquidity Provider Fund itself Stock Market Stock Market / Fund itself
    Sale Price At NAV plus load, if any Significant Premium / Discount to NAV Very close to actual NAV of Scheme
    Availability Fund itself Through Exchange where listed Through Exchange where listed / Fund itself.
    Portfolio Disclosure Monthly Monthly Daily/Real-time
    Uses Equitising cash Equitising cash Equitising Cash, Hedging, Arbitrage
    Intra-Day Trading Not possible Expensive Possible at low cost


  8. Difference between ETFs and Futures ?

    Though ETFs and Futures provide an exposure to the same underlying index, the difference between them are :
    • ETFs trade in much smaller investment sizes than a futures contract making it possible for retail investors to participate in index investing.
    • Futures trading require an account with a broker having derivatives terminal and are subject to margin requirements prescribed by the exchanges.
    • Futures involves significant leverage which magnifies losses in the vent of prices moving against the positions held by the investor.
    • Futures contracts must be rolled-over every three months (or every one month if liquidity is poor in far month contracts) which can lead to higher trading costs and tracking error.

  9. How does settlement take place in ETF's?

    ETF' s trade just like any other normal listed security on the BSE , settlement is just like any other stock. In case an investor has purchased ETF from the market, he has to pay the broker before the pay-in on T+2 and in the case of sale, an investor has to transfer ETF units from his demat account to his brokers account before the settlement on T+2.

  10. What happens in case of default on payment or delivery of ETF's?

    As clearing and settlement is done through the exchange, the exchange's clearing house guarantees all trades. Any shortfall in units will be auctioned by the exchange and the investor is protected by the exchange mechanism.

  11. Can ETF units be used for paying margins to the Stock Exchange ?

    • Liquid BeES ETF units can be deposited by the members with the exchange towards collateral requirements (liquid assets) for margin purposes. These units will be considered as cash equivalent.
    • Other ETF units can also be deposited towards collateral requirements. However these units will be considered as non-cash equivalent.


  12. What are the Advantages of ETFs ?

    • Instant exposure to a well-diversified portfolio or an asset class.
    • Real-time buying and selling of ETF units throughout the trading hours just like any other equity scrip.
    • Most ETFs have a lower expense ratio than comparable mutual funds. Not only does an ETF have lower shareholder-related expenses, but because it does not have to invest cash contributions or fund cash redemptions, an ETF does not have to maintain a cash reserve for redemptions and saves on brokerage expenses.
    • No sales load for investor. Only normal brokerage charges apply.
    • Low tracking error- ETF's trade close to their NAV's unlike substantial premiums/ discounts associated with close-ended funds that trade on the bourses.
    • Tax efficient instrument, capital gains taxes for investors of ETF tend to be much lower than those in mutual funds due to in-kind creation and redemption process.


  13. What are the application of ETFs ?

    • Investors can use ETFs for Strategic Asset allocation ( core holdings) and tactical asset allocation to reflect their short-term investment insights.
    • Investors can use ETFs to make sector bets or reduce their sector exposure.
    • Investors can effectively short or hedge Index exposure by selling ETFs against long stock holdings thereby reducing the broad market risk exposure or beta of the portfolio.
    • An investor in an open-ended mutual fund can only purchase or sell at the end of the day at the mutual fund's closing price. This makes stop-loss orders much less useful for mutual funds, and not all brokers even allow them. An ETF is continually priced throughout the day and therefore is not subject to this disadvantage, allowing the user to react to adverse or beneficial market condition on an intraday basis.


  14. Which are the ETF's that can be traded in BSE ?

    Following are the list of ETF's that can be traded in BSE. :

    S.No Scrip Name Scrip Code Scrip Id
    Gold ETFs
    1 GOLDBEES 590095 GOLDBEES
    2 HDFC Gold ETF 533230 HDFCMFGETF
    3 ICICIBANK 533244 ICICIGETF
    4 KOTAKGOLDETF 590097 KOTAKGOLD
    5 QUANTUM GOLD 590099 QGOLDHALF
    6 RELIANCEGOLD 590100 RELGOLD
    7 RELIGAREGO 533172 RELIGAREGOLD
    8 SBI GOLD ETS 590098 SBIGETS
    9 UTI GOLD ETF 590101 GOLDSHARE
    Liquid ETFs
    10 LIQUIDBEES 590096 LIQUIDBEES
    Equity ETFs
    11 BANKBEES 590106 BANKBEES
    12 Hang Seng BeES 590113 HNGSNGBEES
    13 JUNIORBEES 590104 JUNIORBEES
    14 KOTAK NIFTY ETF 590112 KOTAKNIFTY
    15 KOTAK PSU BK* 590107 KOTAKPSUBK
    16 Kotak Sensex –ETF 532985 KTKSENSEX
    17 Motilal Oswal MOSt Shares M50 ETF 590115 M50
    18 NIFTYBEES 590103 NIFTYBEES
    19 PSUBNKBEES 590108 PSUBNKBEES
    20 QUANTUM INDX* 590110 QNIFTY
    21 REL BANK ETF 590105 RELBANK
    22 SHARIABEES* 590109 SHARIABEES
    23 SPIcE(Sensex-ETF)* 555555 SPICE
    24 UTISUNDERETF* 590102 UTISUNDER