U N I V E R S I T Y O F M Y S O R E

Capital Market Instruments

Topic: Exchange Treaded Funds

Presenting to, Srinivas sir,

Faculty

Department of commerce,

Manasa gangotri,

Mysore.

Exchange traded fundsAn exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product.

Brief history of ETFs◦ S&P Depository Receipts (Spiders) hit the market in

1993.

◦ In the past 12 months 252 new ETFs were launched worldwide and assets increased globally by 46%.

◦ There are about 665 equity, bond, commodity, and currency ETFs, with combined assets of $525 billion

What is an ETF? Two great investment ideas brought together

ETFs

DiversifiedTradable during the day

Diversified funds that trade like

stocks

Mutual FundStock

Types of ETFs Index ETFs

Stock ETFs

Bond ETFs

Commodity ETFs or ETCs

Currency ETFs or ETCs

Investment uses Lower costs

Buying and selling flexibility

Tax efficiency

Market exposure and diversification

Transparency

Why are ETFs so popular?

Transparency • Investors know the ETF holdings, price and costs

Liquidity• ETFs offer two sources of liquidity:• Traditional liquidity measured by secondary market trading volume • Multi dealer model boosts the liquidity of iShares ETFs

Diversification

• ETFs provide immediate exposure to a basket or group of securities for instant diversification

• Broad range of asset classes including equities, bonds, commodities, investment themes, etc

Flexibility• ETFs are listed on exchanges and can be traded at any time the market

is open• Pricing is continuous throughout the day

Cost effectiveness • ETFs offer a cost-effective route to diversified market exposure

Drawbacks of ETFsCannot use them to benefit from what you think may be an exceptional manager.

Value can separate from NAV (Net Asset Value).

Some track narrow market sectors – can be very volatile.

Single country ETFs: (Singapore, Malaysia, Mexico, Brazil to name a few popular ones presently) are posting double digit returns and investors don’t realize they are assuming much higher risk (a handful of large companies dominate these ETFs) ex: Brazil: Petroleo Brasileiro

Another example of this, iSHARES South Korea – 3 companies account for 1/3 of total assets.

Lack long term track records.

conclusion

It’s not always easy to do this kind of analysis, but that’s my point. ETFs aren’t as easy as mutual funds. In most cases they are better cheaper, more tax-efficient, more liquid - but they come with complications.

ReferenceCapital market institutions and instruments

Eastern Economic Edition 4TH edition

Page no : 247

by,

Frank j.fabozzi and franco modigliani

Internet source:

Wikipedia / exchange treaded fund

Presented by,

Mahadeva prasad.m

2nd sem MFM,

DOS in commerce,

Manasa gangotri,

Mysore.

Thanking you