India Exchange Traded Fund (ETF)
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India ETFs are exchange traded funds that invest in stocks of Indian companies, precious metals and currencies. They are listed across the various stock exchanges of India. The main object of an Indian exchange traded fund is tocapture the major sectors of the Indian economy. This aim is fulfilled by the India ETFs by owning a pool of diversified stocksof major companies of the Indian economy.
In December 2001, India began its foray into the sphere of exchange traded funds. ETF Nifty BeES, the Nifty Benchmark Exchange-traded Scheme was the first Indian ETF launched in the country. Based on the S&P CNX Nifty Index, it was launched by the Benchmark Mutual Fund. Other India ETFs launched by Benchmark include the Junior BeES and Liquid BeES.
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How are India ETFs Traded?
The Indian ETFs are traded openly on exchanges. They are designed to track specific indices. Traded like other stocks, these funds are bought or sold through brokers on a daily basis. Unlike traditional equity funds, the Indian exchange traded funds are traded at real-time prices.
The participation of international investments has become a concern for Indian investors. This is because the administrative costs would become higher as a result of the following:
- Rise in exchange costs.
- Higher brokerage fees for trading on international exchanges.
Benefits of India ETF
- While it can be traded like a stock, it gives the additional benefits of mutual funds.
- Indian ETFs provide investors an opportunity to diversify their portfolios.
- Indian exchange traded funds provide investors easy liquidity with a short-term horizon. These can be traded intra-day at aprice close to the net asset value.
Risks of India ETF
- The expense ratio of an Indian ETF is higher than most of the domestic funds.
- Certain rules in India limit direct investment by the foreigners.
- The Indian market is found to be highly fragmented due to a lot of small caps.
Despite these areas of concern, the vibrancy of Indian economy in the form of proficient sectors such as finance, healthcare and information technology, make Indian ETFs an attractive investment.
