8.34ETFs (Exchange Traded Funds)
1What is it?
An ETF is a fund that trades on the stock exchange like a share, at live prices throughout the day. Most ETFs track an index or gold.
2Why does it exist?
Very low cost and real-time trading. You need a demat account, and you buy units like a share.
3Stock market example
Examples: Nifty BeES (NIFTYBEES), Gold BeES (GOLDBEES), Bank BeES (BANKBEES).
4Diagram
| Index fund | ETF | |
|---|---|---|
| Buy from | AMC at end-of-day NAV | Exchange at live price |
| Demat needed | No | Yes |
| SIP | Easy | Possible via broker |
| Costs | Low TER | Very low TER + brokerage + spread |
5Risks
- Low-volume ETFs can trade at a big premium or discount to their NAV.
6Quick revision
- Trades like a share.
- Very low cost.
- Check liquidity and price vs NAV.
7Knowledge check
Q1. Do you need a demat for ETFs?Show answer
Yes.
Q2. Name an Indian ETF.Show answer
Nifty BeES, Gold BeES, Bank BeES.
Q3. ETF risk related to liquidity?Show answer
Trading at a premium/discount to NAV.
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