​​Exchange Traded Funds FAQs​

ETFs offer several advantages to investors : -

• Can easily be bought / sold like any other stock on the exchange through terminals across the country.
• Can be bought / sold anytime during market hours at a price close to the actual NAV of the Scheme.
• No separate form filling. Just a phone call to your broker or a click on the net.
• Ability to put limit orders.
• Minimum investment is one unit. Enjoy flexibility of a stock and diversification of index fund.
• Due to mergers, acquisitions or other occurrences that lead to the termination of the common shares of the Company.

ETFs can either be purchased on the Exchange or directly with the Fund, if you are a large/Authorized person. The Fund creates / redeems units only in predefined lot sizes in exchange for a predefined underlying portfolio basket. Once the underlying portfolio basket is deposited with the Fund together with a cash component, the investor is allotted the units. This is in-kind creation / redemption of units, unique to ETFs.

Alternatively, investors can follow the "Cash Subscription" route in which they can pay cash directly to the Fund for purchasing the underlying portfolio.

ETFs derive their liquidity first from trading of the units in the Secondary Market and second through the in-kind creation / redemption process with the Fund in creation unit size.

Due to the unique in-kind creation / redemption process of ETFs, the liquidity of an ETF is actually the liquidity in the underlying shares.

• Buying / Selling ETFs is as simple as buying / selling any other stock on the exchange.
• ETFs allow investors to take benefit of intraday movements in the market, which is not possible with open-ended Funds.
• With ETFs one pays lower management fees(because of passive/ index linked fund). As ETFs are listed on the Exchange, distribution and other operational expenses are significantly lower, making it cost effective. These savings in cost are passed on to the investor.
• ETFs have lower tracking error due to in-kind creation and redemption.
• Due to its unique structure, the long-term investors are insulated from short term trading in the fund.

Asset Allocation : Asset allocation managing could be difficult for individual investors given the costs and assets required to achieve proper levels of diversification. ETFs provide investors with exposure to broad segments of the equity markets. They cover a range of style and size spectrums, enabling investors to build customized investment portfolios consistent with their financial needs, risk tolerance, and investment horizon.
Both institutional and individual investors use ETFs to conveniently, efficiently, and cost effectively allocate their assets.

Cash Equitisation : Investors typically seek exposure to equity markets, but often need time to make investment decisions. ETFs provide a "Parking Place" for cash that is designated for equity investment. Because ETFs are liquid, investors can participate in the market while deciding where to invest the funds for the longer-term, thus avoiding potential opportunity costs

Hedging Risks : ETFs are an excellent hedging vehicle because they can be borrowed and sold short. The smaller denominations in which ETFs trade relative to most derivative contracts provides a more accurate risk exposure match, particularly for small investment portfolios.

Arbitrage (Cash Vs Futures) and Covered Option Strategies : ETFs can be used to arbitrage between Cash and Futures Market, as it is very easy to trade. ETFs can also be used for cover Option strategies on the Index.

Dividends received by the Scheme will be reinvested in the scheme. However, the Fund may also decide to distribute dividends to the investors.

Same rules apply as in the case of buying or selling stocks or mutual fund units. Kindly refer the respective Scheme Information Document/Statement of Additional Information /Key Information Memorandum