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Exchange Traded Funds

Topics Covered:

  1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

 

Exchange Traded Funds

 

What to study?

For Prelims and Mains: What are ETFs, benefits and significance?

 

Context: The Further Fund Offer 2 (FFO 2) of Bharat 22 Exchange-Traded Fund (ETF), which is part of the government’s divestment programme, will shortly open for subscription for anchor investors and for non-anchor investors.

 

What are ETFs?

Exchange Traded Funds (ETFs) are mutual funds listed and traded on stock exchanges like shares.

Index ETFs are created by institutional investors swapping shares in an index basket, for units in the fund.

Usually, ETFs are passive funds where the fund manager doesn’t select stocks on your behalf. Instead, the ETF simply copies an index and endeavours to accurately reflect its performance.

In an ETF, one can buy and sell units at prevailing market price on a real time basis during market hours.

 

Benefits and significance of ETFs:

  • ETFs are cost efficient. Given that they don’t make any stock (or security choices), they don’t use services of star fund managers.
  • They allow investors to avoid the risk of poor security selection by the fund manager, while offering a diversified investment portfolio.
  • The stocks in the indices are carefully selected by index providers and are rebalanced periodically.
  • They offer anytime liquidity through the exchanges.

 

What you need to know about BHARAT 22?

  • Bharat 22 consists of 22 stocks of CPSE’s, PSB’s & strategic holding of SUUTI. Bharat 22 is a well Diversified portfolio with 6 sectors (Basic Materials, Energy, Finance, FMCG, Industrials & Utilities).
  • ICICI Prudential AMC will be the ETF Manager and Asia Index Private Limited (JV BSE and S& P Global) will be the Index Provider.

Sources: the Hindu.

 

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