Skip to main content

Exchange Traded Funds (ETFs) - Part 2

In this second part of the series about Exchange Traded Funds (ETFs), we look at the advantages and disadvantages of ETFs. As we have seen earlier in Part 1 , ETFs trade like shares while providing the diversification of managed funds.

Though they are similar to mutual funds, they differ in their diversification like index, commodities and different sectors. Their performance closely tracks the investment returns of the shares making up the index or the commodity they are invested into.

Benefits of investing in ETFs:

1. ETFs are passively managed, have low distribution costs and minimal administrative charges. Hence most ETFs have lower expense ratios than conventional Mutual Funds.
2. Not dependent on the fund manager, the ETF just tracks the index.
3. Like an index fund, they are very transparent.
4.Convenient to buy and sell as it can be bought/sold on the stock exchange at any time of the day when the market is open.
5.One can short sell an ETF or buy even purchase one unit, which is not possible with index-funds/conventional Mutual Funds.

Disadvantages of investing in ETFs:

1. Though most ETFs charge lower annual expenses than index mutual funds, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who invest regular sums of money.
2.SIP in ETF is not convenient as you have to place a fresh order with your stocks broker, every month.
3.Also SIP may prove expensive as compared to a no-load, low-expense index funds as you have to pay brokerage every time you buy and sell.
4.Because ETFs are conveniently tradeable, people tend to trade more in ETFs as compared to conventional funds. This unnecessarily pushes up the costs of investing.
5.Comparatively lower liquidity as the market has still not caught up on the concept.

ETFs in India:

In India, Benchmark Asset Management company was the first company to launch an index ETF - Nifty Bees and a Commodity ETF - Gold Bees (Surprisingly there isn't any Silver ETF, yet).There are other ETFs like Bank Bees, Infra Bees, etc., but they are illiquid and yet to catch the retail investors' fancy.

Hope, more and more investors come to know of such instruments and benefit from investing in them. To conclude, if an investor is looking for a long-term and defensive investment strategy in equities by backing the index rather than looking at active management, ETFs offer a good alternative to index-based funds.


  1. That was a well explained article.

  2. AnonymousJune 10, 2014

    Hi, I am Rajesh. You have mentioned that "Though most ETFs charge lower annual expenses than index mutual funds...", my question is what are the annual expenses in case of ETFs? My understanding is that the only expense involved in ETFs are the buying and selling transaction costs like brokerage, STT, Stamp Duty etc. Please clarify what are the annual expenses.

  3. AnonymousJune 10, 2014

    Hi, I am Rajesh. At one place, you have mentioned that Nifty Bees and Gold Bees were launched by Benchmark Asset Management company. ...whereas in some other articlaes you have mentioned that the Gold Bees is owned by Goldman Sachs. Are Goldman Sachs and Benchmark Asset Management company same entity or different entity? Please clarify.

  4. @Yes, the expenses involved with ETFs are those you mentioned along with minimum administration charges. The annual expenses are limited between .6 to 1.5%.

    The traditional mutual funds or active funds, keep buying and selling which involve more costs than passive funds.Their expense ratio is about 2.5%.

    Benchmark funds launched the schemes initially and few years before Goldman took over. GS runs the fund now, but with the name as GS nifty bees etc..


Post a Comment

Popular posts from this blog

Your Bill Amounts Are Going To Increase From June 1, 2016

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. Union Finance Minister, Arun Jaitley, in his budget announcements proposed to impose a cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The present rate of service tax will be hiked to 15 per cent from June 1, 2016, from 14.5 per cent. Take a look at what gets expensive:

Phone Bills: Your phone bills are going to go up. So, pay a good 15 per cent now on service tax on phone bills.

Restaurant Bills :If you are dining in a restaurant that already has service tax applicable, you are going to pay more on your eating out. Though 0.5 per cent on a single bill may not mean much, frequent diners may end-up paying a lot during the year.

Travelling: You will have to pay more for air travel, as there is a service tax on tour operators and travel agents.

What is Gold ETF - Gold Bees, Reliance Gold,Kotak Gold

What is Gold Bees or Gold ETF?

Gold ETFs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investors' holding will be denoted in units, which will be listed on a stock exchange.They provide returns that would closely track the returns from physical gold in the spot market.

An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.Presently there are many Gold ETFs traded in NSE India. Some of the listed Gold ETFs are GoldBees,Reliance Gold,Kotak Gold,UTI Goldshare

Why choose Gold?
Gold holds its own in any investment evaluation on its strengths as a hedge against inflation, value in the event of political uncertainties and its traditionally negative co-relation with other asset classes such as stocks, fixed income securities and commodities.

The value of goods and services that gold can buy has remained stable unlike currencies that have seen significant…


NIFTY BEES - is the first ETF (Exchange Traded Fund) in India, which seeks to provide investment returns that closely correspond to the total returns of securities as represented by the S&P CNX Nifty Index. It gives you the most diversified exposure at lowest possible unit size. Approximately value of Nifty bees will be 1/10th value of the prevailing Nifty price.

ETFs are one of the latest financial innovations and any new concept takes time to be known widely. Globally it took more then five to seven years before it could be of any significant size. In India, it was introduced with Rs 21 crore in size , a fraction of the mutual fund industry, it has come far with more than Rs 700 crore in size with six ETFs.

The Nifty BeES also scores over other index funds due to its low tracking error and expense ratio, apart from easier tradeability as it is listed in the NSE. One can also consider doing an SIP in Nifty BeES.

Some of the reasons to invest in Nifty Bees : Investing in Exchange …