+ Expand AllWhat are Exchange Traded Funds (ETF)
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QWhat is an Exchange Traded Fund (ETF)?A
ETFsare a type of Mutual Funds that tracks an index (NIFTY/SENSEX), or a commodity (Gold) or a basket of assets like an index fund. However unlike regular Mutual Funds, ETF are listed on exchange & trades like a stock, thus experiencing price changes throughout the day as it is bought & sold. -
QWhat are the benefits of investing in ETFs?A
Following is the benefits of investing in ETFs:
- ETF based on broad market indices provides diversification to your investments
- Buy & Sell at Real Time Price
- Ideal for Retail Investor as minimum lot sizeto trade is one unit on secondary market
- Low expense ratio resulting in lower cost
- Trading of ETF on exchange provides flexibility & liquidity to your investments
- ETFs tend to replicate the performance of the underlying with least error ratio
- ETF holdings/portfolio are readily disclosedmaking your investment highly transparent
- Quick and Convenient Dealing through Demat Account
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QWhat are the risks associated with investments in ETFs?A
Following are the risks associated with investments in ETFs:
- Market Risk: Like all other investments related to markets, ETFs are also subjected to market risk which can be reduced by diversifying your investments across markets & sectors
- Bid-Ask Spread: There is a spread between the bid price (highest price a buyer is willing to pay for a share) and ask price (lowest price a seller is willing to accept for a unit). This spread varies from one ETF to another. The same is neutralized by higher liquidity
- Tracking Error: Index ETFs tracks a particular index as its underlying. The returns generated by the ETF can be lower or higher than the underlying ETF due to the cash component maintained in the portfolio
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QHistory of ETF?A
ETF marked its origin in 1989 with Index Participation Shares, an S&P 500 Proxy that traded on American Stock Exchange & Philadelphia Stock Exchange. A similar product was launched in 1990 on Tokyo Stock Exchange. In the last 20 years of its existence, ETFs have grown quickly to over $882 billion spread across 916 funds as at the end of 2010. This has been the fastest growing investment product globally especially during 2008 meltdown. The various advantages like convenience, low cost, and most importantly transparency has drawn lot of attention from the investors across geographies. Initially, all the ETFs products were launched tracking various equity indices. As the confidence of the investors grew and the industry matured, the product basket has also proliferated to funds tracking Bond, Commodities, Currency, Sector, Country specific etc. -
QWhat are the different types of ETFs available for investment?A
The different types of ETFs are:
- Gold ETF: A gold ETF aims to track the price of gold. Gold ETFs are units representing physical gold which may be in paper or dematerialized form. These units are traded on the Exchange like a single stock of any company. Gold ETFs offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold.
- Index ETF: Index ETFs are the type of ETFs whose unit value is derived from an index. The underlying index act as a tracking instrument. These ETFs seek to track the performance of an index by holding in its portfolio the contents of the index.
- International ETF: These ETFs have an international index like NASDAQ, HANG SENG as the underlying tracking instrument. The index chosen is often the major index within the country, designed to reflect the overall economic condition of the country
- Sector Specific ETF: These ETFs have a specific sector like Bank, Infrastructure as the underlying tracking instrument. They closely track the performance of underlying sector &provide diversified exposure to your investments.
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QHow can I invest in ETFs through Kotak Securities?A
You can invest in ETFs in the following ways:
- Call your RM/dealer & place the order over the recorded phone line
- Login to www.kotaksecurities.com>Place an Order>ETFs
- Call 30305757 to place an order through Call & Trade
- Invest through mobile using Kotak Stock Trader (KST)
- Invest through KEAT PRO X, real time trading platform
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QWho can invest in ETFs?A
Following categories are eligible for investment in ETFs:
- Individuals (Residents/NRI (NRE & NRO both)
- Corporates
- Institutions
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QHow can I invest regularly in these schemes? Do these schemes offer Systematic Investment Plan (SIP)?A
After the NFO, retail investors can buy or sell additional units only through the recognized stockexchange. Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) are currently not available.
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QWhat are the costs involved in buying/selling an ETF?A
Since ETFs are listed & traded on exchange, the cost to an investor accrue only in the form of brokerages, management fees & taxation
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QHow are ETFs taxed?A
Please note below the tax implication associated with investment in ETF:
Parameter Gold ETF Index ETF International ETFInternational ETF Sector Specific ETF Wealth Tax Nil Nil Nil Nil Short Term Capital Gains Tax As per the Income Tax Slab 15% As per the Income Tax Slab 15% Long Term capital Gains Tax 10% without indexation or 20% with indexation Nil 10% without indexation or 20% with indexation Nil Securities Transaction Tax (STT) Nil 0.125% * Nil 0.125% * -
QCan Non Resident Indians (NRIs) invest in ETF?A
Yes, NRIs can invest in ETFs through Non PINS account only, on Repatriable and Non Repatriable basis. Investment in ETF are subjected to TDS (Tax deduction at Source)
With respect to the ETF purchased, if any, as part of the Trading and Settlement Awareness Program (TSAP) if consented by the client at the time of account opening, KSL can sell the said ETF at the prevalent market rate if the said ETF is still lying in client’s account, in order to facilitate closure of the account.
- Mandatory by SEBI
- Easy Portfolio Management
- Security of Equity Investments.
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