1. Exchange Traded Funds (ETFs) are innovative products, which first came into existence in the USA in 1993. They have gained prominence over the last few years with over $300 billion invested as of end 2001 in about 360 ETFs globally.
About 60% of trading volume on the American Stock Exchange is from ETFs. Among the popular ones are SPDRs (Spiders) based on the S&P 500 Index, QQQs (Cubes) based on the Nasdaq-100 Index, iSHARES based on MSCI Indices and TRAHK (Tracks) based on the Hang Seng Index.
ETFs provide exposure to an index or a basket of securities that trade on the exchange like a single stock. They have a number of advantages over traditional open-ended funds as they can be bought and sold on the exchange at prices that are usually close to the actual intra-day NAV of the scheme. They are an innovation to traditional mutual funds as they provide investors a fund that closely tracks the performance of an index with the ability to buy/sell on an intra-day basis. Unlike listed closed-ended funds, which trade at substantial premia or more frequently at discounts to NAV, ETFs are structured in a manner which allows to create new units and redeem outstanding units directly with the fund, thereby ensuring that ETFs trade close to their actual NAVs.
The first ETF in India, "Nifty BeEs" (Nifty Benchmark Exchange Traded Scheme) based on S&P CNX Nifty, was launched in December 2001 by Benchmark Mutual Fund. It is bought and sold like any other stock on NSE
and has all characteristics of an index fund. It would provide returns that closely correspond to the total return of stocks included in Nifty.
For more information : http://www.nseindia.com/content/products/prod_etfs7.htm
