mutual fund
TRANSCRIPT
Exchange Traded Funds
The Exchange Traded Fund
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Exchange Traded Fund (ETF)Exchange Traded Fund (ETF)
An ETF is like a mutual fund that trades on stock exchange
Mutual Fund:–Simplicity–Diversification–Transparency–Risk control–Collective Investment–Open-End Fund
Mutual Fund:–Simplicity–Diversification–Transparency–Risk control–Collective Investment–Open-End Fund
Stock:– On Exchange– Market determined
pricing– Trading flexibility– Trading strategies
Stock:– On Exchange– Market determined
pricing– Trading flexibility– Trading strategies
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Structure of an ETF
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PRIMARY MARKET SECONDARY MARKET
Authorized ParticipantsAuthorized Participants
ETF IssuerETF Issuer
BuyerBuyer
ExchangeExchange
SellerSeller
Buy & Sell
Market Making
Arbitrage
* Creation & Redemption of ETF units is done only in integral multiples of creation units.
ETFs: Benefits for the Retail Investor
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Safe
Simple
Fast
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Simple: Can be traded on NSE like a stock
Instant Diversification: Single scrip to trade in a broad Indian market
Economical: Lowest expense ratio amongst all equity mutual funds
Auto Balancing: No need to rebalance portfolio after corporate actions
No costs other than brokerage are payable in buying or selling on exchange
You can track your investment value in real time
Gold ETF
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SIMPLESIMPLE
SAFESAFE
TRUSTEDTRUSTED
– Unit of Dematerialized Gold
– Lists and trades on a stock exchange
– Every ETF unit is backed by physical gold
What is Gold ETF?What is Gold ETF?
– No wastage, impurities & extra charges
– Transparent real time prices
– Can be purchased in small lots, typically 1 gram
– Tax efficient way to hold gold
Why Gold ETF?Why Gold ETF?
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Gold ETF: Cost Advantages
Gold Purchase (Actual Prices)
Banks*Jewelers
Gold ETF##
Local# Branded**
Standard (purity) 999 995 999 995
Market Price(per gm) 2747 2387# 2756 2235
Adjusted Price (for 995 purity) 2736 2387 2745 2235
Initial Investment (10 gms) 27360 23870 27450 22350
Brokerage 0 0 0 147
VAT @ 1% 274 239 275 0
Net Cost 27634 24109 27725 22741
An investor pays a premium ranging from 5% to 20% for NOT buying a Gold ETF An investor pays a premium ranging from 5% to 20% for NOT buying a Gold ETF
All prices as on 28-07-2011*Price as taken from HDFC Bank website #Average price is 2-3% over spot price **Price as taken from a leading branded jewelery store ## Last Close Price for the most liquid Gold ETF as on 28-07-11
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Gold ETF: Tax Advantages
Tax Computations
Banks Jewelers Fund of Funds Gold ETF
Wealth Tax Applicable Applicable NA NA
Long Term Capital Gains 3 Years 3 Years 1 Year 1 Year
Value Added Tax Applicable Applicable NA NA
For an investor, a Gold ETF has the most favorable post tax outcomeFor an investor, a Gold ETF has the most favorable post tax outcome
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Gold ETF – Specifications
Type of fund Non Equity ETF
Investment In underlying physical gold
Taxation treatment Debt
Unit ~1 gm of gold, typically
Tick Size INR 0.01
Minimum Lot (on Exchange) 1 unit
Minimum Lot (Direct) 1000 units
Expense Ratio ~ 1.00 %
Trade hours Same as cash market
Price Market determined, tracks NAV
Trade cycle T+2
Allocation PatternGold 90 – 100%
Money market, securitized debts, bonds and cash at call 0 – 10%
NIFTY ETF
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– Blue chip stocks
– Well diversified
– Highly liquid
– Represents Indian business economy
Why NIFTY?Why NIFTY?
– Direct investment in benchmark index
– Lower Cost
– More Transparency
– More Flexibility
– Small ticket size
Why NIFTY ETF?Why NIFTY ETF?
Nifty ETF is the simple and safe way to access equity markets
Nifty ETF is the simple and safe way to access equity markets
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Nifty ETF: Key Benefits
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22
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44
55
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Simple: Can be traded on NSE like a stock
Instant Diversification: Single scrip to trade in a broad Indian market
Economical: Lowest expense ratio amongst all equity mutual funds
Auto Balancing: No need to rebalance portfolio after corporate actions
No costs other than brokerage are payable in buying or selling on exchange
You can track your investment value in real time
Safe
Simple
Fast
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Nifty ETF – Specifications
Type of fund Equity ETF
Investment In basket of securities replicating the S&P CNX NIFTY index
Taxation treatment Equity
Pricing per Unit ~ 1/10th of Index
Tick Size INR 0.01
Minimum Lot (on Exchange) 1 unit
Minimum Lot (Direct) 10000 units
Expense Ratio ~ 0.50 %
Trading hours Same as cash market
Price Market determined, tracks NAV
Trade cycle T+2
Allocation PatternSecurities covered by S&P CNX Nifty Index Upto 100%
Money market, securitized debts, bonds and cash at call 0 – 10%
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LIQUID ETF
• Investment Objective
– Current Income, Low risk, High level of liquidity– Invest in – T Bills, GS, Call Money, CBLO– Similar Instruments Repos, Reverse Repos & other money market
Instruments
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Normal Sell Transaction
• Your sell order on T day• T+1• Stock gets debited from your Demat account• T+2• Net sell proceeds credited to your margin account• You will either ask for pay out or money will be lying idle in margin
account
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