Exchange Traded Fund

An Exchange traded fund (ETF), is a type of Investment Company whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index. An ETF invest in a basket of stocks which blindly mimics a chosen market index (say, the S&P, CNX, Nifty, or the BSE sensex). For convenience, the Net Asset Value (NAV) of the ETF is usually represented as a fraction of its underlying index. For instance, the benchmark Nifty ETF has an NAV that is one tenth of the prevailing Nifty value. Unlike regular open end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

The total market in India for ETF is very small at less Rs.500 crore. UTI has an ETF called SUNDERS, Prudential ICICI has SPICE, (India’s first exchange traded fund) but the most focused player is a little known fund house called Benchmark Mutual Fund with several products on offer.