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Sunday, January 9, 2011

Equity ETFs in India

ETF stands for Exchange Traded Funds. ETFs provide a very convenient way of diversification. An ETF as the name indicates is a Fund which is traded on the Exchange. The most popular ETFs are Index ETFs, Gold ETF etc. These are the most popular ones. There could be an ETF created for virtually everything. An Index ETF, for instance mimics the performance of an index. Examples could be "Sensex based ETF", "Nifty based ETF" etc. In the US markets, the volume of ETFs traded is quite high. The S&P 500 ETF , for instance tracks the S&P 500 Index.


Use of Index ETFs: You might have a general feeling that the Indian Economy might do well on the long run. You might also have the feeling that the returns by Sensex over the next 10 years would more than compensate for the risk you take. If you are a low risk investor (in the sense that you wouldn't want to bet on Individual Companies), then ETF is for you. You could go for buying ETFs for certain amount of money every month or do your detailed planning.


Some Index ETFs in India (Which track Indian Indices) are: Quantum Index Fund, Nifty BeEs, Kotak Sensex ETF, Kotak Mahindra - Nifty ETF. Please have a look at the link below for more understanding on Nifty BeEs.
http://www.nseindia.com/content/products/prod_niftybees.htm


Other Index ETFs are also present which track specific indices such as Bank Index, Nifty Junior etc. At present there is only one Index ETF in India which tracks an Equity Index of Hong Kong. This is the only international Equity ETF traded in India right now. This trades on Nifty and is called Hang Seng BeEs. For more information on Hang Seng BeEs, please visit:

http://www.nseindia.com/content/mfss/mf_fd_hsbets.pdf


So sitting here in India, we can gain exposure to the HK Index as well. This is just the beginning. I am sure that in times to come we will have multiple country ETFs or at least the ETFs tracking popular indices like S&P 500, NASDAQ and EuroStoxx 50 (European Index) etc.


Other Equity Indices are DAX 40 (German Index), Nikkei 225 Index (Japanese), CAC 40 (French), FTSE 100 (UK) etc.

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