Mutual Fund :
Meaning :
A mutual fund is a financial intermediary that pools the savings of investors for
collective investment in a diversified portfolio of securities. A fund is “mutual” as all of its
returns, minus its expenses, are shared by the fund’s investors. A mutual fund serves as a
link between the investor and the securities market by mobilising savings from the
investors and investing them in the securities market to generate returns. Thus, a mutual
fund is akin to portfolio management services (PMS). Although, both are conceptually
same, they are different from each other. Portfolio management services are offered to
high net worth individuals; taking into account their risk profile, their investments are
managed separately. In the case of mutual funds, savings of small investors are pooled
under a scheme and the returns are distributed in the same proportion in which the
investments are made by the investors/unit-holders. Mutual fund is a collective savings
scheme. Mutual funds play an important role in mobilising the savings of small investors
and channelizing the same for productive ventures in the Indian economy.
Mutual funds are pooled investment vehicles actively managed either by professional
fund managers or passively tracked by an index or industry. The funds are generally well
diversified to offset potential losses. They offer an attractive way for savings to be managed in a
passive manner without paying high fees or requiring constant attention from individual
investors. Mutual funds present an option for investors who lack the time or knowledge to make
traditional and complex investment decisions. By putting your money in a mutual fund, you
permit the portfolio manager to make those essential decisions for you
Working of Mutual Funds
Organizational Structure of mutual fund in India
The structure of Mutual Funds in India is a three-tier one. There are three distinct entities
involved in the process – the sponsor (who creates a Mutual Fund), trustees and the asset
management company (which oversees the fund management). The structure of Mutual
Funds has come into existence due to SEBI (Securities and Exchange Board of India)
Mutual Fund Regulations, 1996. Under these regulations, a Mutual Fund is created as a
Public Trust.
The Fund Sponsor
The Fund Sponsor is the first layer in the three-tier structure of Mutual Funds in India.
SEBI regulations say that a fund sponsor is any person or any entity that can set up a
Mutual Fund to earn money by fund management. This fund management is done through
an associate company which manages the investment of the fund. A sponsor can be seen
as the promoter of the associate company. A sponsor has to approach SEBI to seek
permission for a setting up a Mutual Fund. Once SEBI agrees to the inception, a Public
Trust is formed under the Indian Trust Act, 1882 and is registered with SEBI. Trustees
are appointed to manage the trust and an asset management company is created
complying with the Companies Act, 1956.
Trust and Trustees
Trust and trustees form the second layer of the structure of Mutual Funds in India. A trust
is created by the fund sponsor in favour of the trustees, through a document called a trust
deed. The trust is managed by the trustees and they are answerable to investors. They
can be seen as primary guardians of fund and assets. Trustees can be formed by two ways
– a Trustee Company or a Board of Trustees. The trustees work to monitor the activities
of the Mutual Fund and check its compliance with SEBI (Mutual Fund) regulations.
Asset Management Companies
Asset Management Companies are the third layer in the structure of Mutual Funds. The
asset management company acts as the fund manager or as an investment manager for
the trust. A small fee is paid to the AMC for managing the fund. The AMC is responsible
for all the fund-related activities. It initiates various schemes and launches the same. The
AMC is bound to manage funds and provide services to the investor. It solicits these
services with other elements like brokers, auditors, bankers, registrars, lawyers, etc. and
works with them. To ensure that there is no conflict between the AMCs, there are certain
restrictions imposed on the business activities of the companies.
Custodian
A custodian is responsible for the safekeeping of the securities of the Mutual Fund. They
manage the investment account of the Mutual Fund, ensure the delivery and transfer of
the securities. They also collect and track the dividends & interests received on the
Mutual Fund investment.
Registrar and Transfer Agents (RTAS)
These are the entities who provide services to Mutual Funds. RTAs are more like the
operational arm of Mutual Funds.
Types of Mutual fund (on the basis of objective, on the basis of
flexibility):
(a) On the basis of Objective
➢ Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal
objective of capital appreciation of the investment over the medium to long-term. They
are best suited for investors who are seeking capital appreciation. There are different
types of equity funds such as Diversified funds, Sector specific funds and Index based
funds.
1) Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant
for risk-averse investors who want a diversified portfolio across sectors.
2) Sector funds
These funds invest primarily in equity shares of companies in a particular business sector
or industry. These funds are targeted at investors who are bullish or fancy the prospects
of a particular sector.
3) Index funds
These funds invest in the same pattern as popular market indices like S&P CNX Nifty or
S&P CNX 500. The money collected from the investors is invested only in the stocks,
which represent the index. For e.g. a Nifty index fund will invest only in the Nifty 50
stocks. The objective of such funds is not to beat the market but to give a return equivalent
to the market returns.
➢ Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities
provided under this scheme are in the form of tax rebates under the Income Tax act.
➢ Debt/Income Funds
These funds invest predominantly in high-rated fixed-income-bearing instruments like
bonds, debentures, government securities, commercial paper and other money market
instruments. They are best suited for the medium to long-term investors who are averse
to risk and seek capital preservation. They provide a regular income to the investor.
➢ Liquid Funds/Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment
could be as short as a day. They provide easy liquidity. They have emerged as an
alternative for savings and short term fixed deposit accounts with comparatively higher
returns. These funds are ideal for corporates, institutional investors and business houses
that invest their funds for very short periods.
➢ Gilt Funds
These funds invest in Central and State Government securities. Since they are
Government backed bonds they give a secured return and also ensure safety of the
principal amount. They are best suited for the medium to long-term investors who are
averse to risk.
➢ Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in
some proportion. They provide a steady return and reduce the volatility of the fund while
providing some upside for capital appreciation. They are ideal for medium to long-term
investors who are willing to take moderate risks.
b) On the basis of Flexibility
➢ Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open for
subscription and redemption throughout the year. Their prices are linked to the daily net
asset value (NAV). From the investors' perspective, they are much more liquid than
closed-ended funds.
➢ Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and
thereafter closed for entry as well as exit. These funds have a fixed date of redemption.
One of the characteristics of the close-ended schemes is that they are generally traded at
a discount to NAV; but the discount narrows as maturity nears. These funds are open for
subscription only once and can be redeemed only on the fixed date of redemption. The
units of these funds are listed on stock exchanges (with certain exceptions), are tradable
and the subscribers to the fund would be able to exit from the fund at any time through
the secondary market.
Benefits of Mutual fund:
There are several benefits from investing in a Mutual Fund:
1. Small investments: Mutual funds help you to reap the benefit of returns by a
portfolio spread across a wide spectrum of companies with small investments.
2. Professional Fund Management: Professionals having considerable expertise,
experience and resources manage the pool of money collected by a mutual fund.
They thoroughly analyse the markets and economy to pick good investment
opportunities.
3. Professional Management: When you buy a mutual fund, you are also choosing
a professional money manager. This manager will use the money that you invest
to buy and sell stocks that he or she has carefully researched. Therefore, rather
than having to thoroughly research every investment before you decide to buy or
sell, you have a mutual fund's money manager to handle it for you.
4. Spreading Risk/Diversification: An investor with limited funds might be able to
invest in only one or two stocks/bonds, thus increasing his or her risk. However,
a mutual fund will spread its risk by investing a number of sound stocks or bonds.
A fund normally invests in companies across a wide range of industries, so the risk
is diversified. One rule of investing, for both large and small investors, is asset
diversification. Diversification involves the mixing of investments within a
portfolio and is used to manage risk. For example, by choosing to buy stocks in the
retail sector and offsetting them with stocks in the industrial sector, you can
reduce the impact of the performance of any one security on your entire portfolio.
To achieve a truly diversified portfolio, you may have to buy stocks with different
capitalizations from different industries and bonds with varying maturities from
different issuers. For the individual investor, this can be quite costly. By
purchasing mutual funds, you are provided with the immediate benefit of instant
diversification and asset allocation without the large amounts of cash needed to
create individual portfolios. One caveat, however, is that simply purchasing one
mutual fund might not give you adequate diversification - check to see if the fund
is sector or industry specific. For example, investing in an oil and energy mutual
fund might spread your money over fifty companies, but if energy prices fall, your
portfolio will likely suffer.
5. Transparency: Mutual Funds regularly provide investors with information on the
value of their investments. Mutual Funds also provide complete portfolio
disclosure of the investments made by various schemes and also the proportion
invested in each asset type.
6. Choice: The large amount of Mutual Funds offer the investor a wide variety to
choose from. An investor can pick up a scheme depending upon his risk/ return
profile.
7. Regulations/ Well regulated : All the mutual funds are registered with SEBI and
they function within the provisions of strict regulation designed to protect the
interests of the investor. Mutual funds in India are regulated and monitored by the
Securities and Exchange Board of India (SEBI), which endeavors to protect the
interests of investors. All funds are registered with SEBI and complete
transparency is enforced. Mutual funds are required to provide investors with
standard information about their investments, in addition to other disclosures like
specific investments made by the scheme and the quantity of investment in each
asset class.
8. Less Expensive/ Low transaction cost : Due to economies of scale, mutual funds
pay lower transaction costs. The benefits are passed on to mutual fund investors,
which may not be enjoyed by an individual who enters the market directly.
9. Liquidity : Another advantage of mutual funds is the ability to get in and out with
relative ease. In general, you are able to sell your mutual funds in a short period of
time without there being much difference between the sale price and the most
current market value. However, it is important to watch out for any fees associated
with selling, including back-end load fees. Also, unlike stocks and exchange-traded
funds (ETFs), which trade any time during market hours, mutual funds transact
only once per day after the fund's net asset value (NAV) is calculated. Mutual funds
are usually very liquid investments. Unless they have a pre-specified lock-in
period, your money is available to you anytime you want subject to exit load, if
any. Normally funds take a couple of days for returning your money to you. Since
they are well integrated with the banking system, most funds can transfer the
money directly to your bank account.
10. Convenience and Flexibility.: You own just one security rather than many, yet
enjoy the benefits of a diversified portfolio and a wide range of services. Fund
managers decide what securities to trade, clip the bond coupons, collect the
interest payments and see that your dividends on portfolio securities are received
and your rights exercised. It's easy to purchase and redeem mutual fund shares,
either directly online or with a phone call.
11. Investor Information: Shareholders receive regular reports from the mutual
funds, including details of transactions on a year-to-date basis. The current net
asset value of your shares (the price at which you may purchase or redeem them)
appears in the mutual fund price listings of daily newspapers. You can also obtain
pricing and performance results for the all mutual funds at this site, or it can be
obtained by phone from the mutual funds.
12. Tax benefits
13. Return Potential
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The
per unit NAV is the net asset value of the scheme divided by the number of units
outstanding on the Valuation Date.
Net Asset Value (NAV) is the total asset value (net of expenses) per unit of the fund and is
calculated by the AMC at the end of every business day. In order to calculate the NAV of a mutual
fund, you need to take the current market value of the fund's assets minus the liabilities, if any
and divide it by the number of shares outstanding. NAV is calculated as follows:
For example, if the market value of securities of a Mutual Fund scheme is 500 lakh and
the Mutual Fund has issued 10 lakh units of 10 each to investors, then the NAV per unit
of the fund is 50.
The net asset value (NAV) of a mutual fund indicates the price at which the units of that
mutual fund are bought or sold. It represents the fund's market value after subtracting
the liabilities. The NAV per unit is derived after dividing the net asset value of the fund by
the total number of its outstanding units.
NAV is an indicator of the market value of the fund's units. Hence, it helps track the
performance of the mutual fund you have invested in. The percentage increase in your
fund's NAV over time is the actual increase in the value of your investment. Therefore, an
investor can gain accurate information about his investment by studying the NAV
movements of a fund over a period of time.
Many investors assume that putting money in mutual funds with a lower NAV may offer
them better returns compared to a mutual fund with a higher NAV. However, this is a
misconception and often leads investors to invest in under performing mutual funds. Low
NAV of a mutual fund may suggest that the fund was either floated recently or the fund
has poor performance and return history.
Therefore, low or high, NAV does not impact the return on investment from the mutual
fund.
What is an entry load and an exit load?
Investors are increasingly taking the mutual funds route to park their hard-earned money
for better returns in due course of time. It is thus essential to familiarise oneself with all
the charges associated with investing in mutual fund schemes. Entry and exit-load are
one of the integral charges linked with MF investments. Several administrative, operative,
distribution expenses in addition to the costs pertaining to issuance of mutual funds are
incurred by mutual fund organizations that is in general passed on to investors in the
form of loads. Simply stated, it is the commission charged for investing in mutual fund
scheme by Asset Management companies (AMCs).
Some Asset Management Companies (AMCs) have sales charges, or loads, on their funds
(entry load and/or exit load) to compensate for distribution costs.
Funds that can be purchased without a sales charge are called no-load funds.
Entry load is charged at the time an investor purchases the units of a scheme. The entry
load percentage is added to the prevailing NAV at the time of allotment of units. Entry
Load is a percentage of fee levied on the purchase of a mutual fund scheme. The levying
of entry load reduces the investors' investment. For instance, a mutual fund scheme with
5% entry-load would deduct entry-load from the amount invested into the scheme and
invest the remaining amount. Further, in simple parlance, investors purchase a mutual
fund scheme at the net asset value (NAV) plus the entry load.
The SEBI that is the Securities and Exchange Board of India has totally abolished the entry
load. Before this the mutual fund companies used to charge about 2.25% of entry load on
the total value of the fund.
Exit load is charged at the time of redeeming (or transferring an investment between
schemes). The exit load percentage is deducted from the NAV at the time of redemption
(or transfer between schemes). This amount goes to the Asset Management Company and
not into the pool of funds of the scheme. Exit load is levied as a percentage amount when
the investor wishes to exits or redeem one's mutual fund investments before the
otherwise stipulated period. Thus, while an exit is made by the investor from a mutual
fund scheme, the return that accrues on account of the investment made gets reduced as
the percentage of exit load is reduced from the NAV. Further, the percentage of exit-load
varies from scheme to schemes. This exit load is indeed retained by the asset
management company and does not form the part of the corpus of the scheme
Risk in Mutual Fund
Mutual Funds do not provide assured returns. Their returns are linked to their
performance. They invest in shares, debentures, bonds etc. All these investments involve
an element of risk. The unit value may vary depending upon the performance of the
company and if a company defaults in payment of interest/principal on their
debentures/bonds the performance of the fund may get affected. Besides incase there is
a sudden downturn in an industry or the government comes up with new a regulation
which affects a particular industry or company the fund can again be adversely affected.
All these factors influence the performance of Mutual Funds.
Some of the Risk to which Mutual Funds are exposed to is given below:
1. Market risk : If the overall stock or bond markets fall on account of overall
economic factors, the value of stock or bond holdings in the fund's portfolio can
drop, thereby impacting the fund performance.
2. Non-market risk : Bad news about an individual company can pull down its stock
price, which can negatively affect fund holdings. This risk can be reduced by
having a diversified portfolio that consists of a wide variety of stocks drawn from
different industries.
3. Interest rate risk : Bond prices and interest rates move in opposite directions.
When interest rates rise, bond prices fall and this decline in underlying securities
affects the fund negatively.
4. Credit risk : Bonds are debt obligations. So when the funds invest in corporate
bonds, they run the risk of the corporate defaulting on their interest and principal
payment obligations and when that risk crystallizes, it leads to a fall in the value
of the bond causing the NAV of the fund to take a beating.
5. Inflation Risk : Inflation is the loss of purchasing power over time. A lot of times
people make conservative investment decisions to protect their capital but end up
with a sum of money that can buy less than what the principal could at the time of
the investment. This happens when inflation grows faster than the return on your
investment. A well-diversified portfolio with some investment in equities might
help mitigate this risk.
6. Political/Government Policy Risk : Changes in government policy and political
decision can change the investment environment. They can create a favourable
environment for investment or vice versa.
What Is an Asset Management Company (AMC)?
Asset management companies (AMCs) are firms pooling funds from various individual
and institutional investors and investing in various securities. The company invests the
funds in capital assets such as stocks, real estate, bonds, and so on. The asset management
companies have professionals called fund managers who manage the investment and the
research team selects the right securities. Along with high-net-worth individual (HNWI)
portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller
investors—create pooled structures such as mutual funds, index funds, or exchange-
traded funds (ETFs), which they can manage in a single centralized portfolio.
AMCs generally charge a fee to their clients that is equal to a percentage of total assets
under management (AUM). AUM is simply the total amount of capital provided by
investors. In general, an AMC is a company that is engaged primarily in the business of
investing in, and managing, portfolios of securities. In order to manage these funds, the
asset management company appoints professionals called fund managers who look after
the overall investment decision related to the pooled money. Fund Managers are highly
qualified people who have extensive and rich experience in the field of stock markets and
investments. They ensure whether the investments are made as per the objectives of the
investors and take suitable investment opportunities in the ever-changing market.
Needless to say, the ultimate outcome of their investment is to make profitable
investments.
How Does an Asset Management Company Work?
The Asset Management Company is that part of the mutual fund that looks after its
operations and investments. The formation of the AMC requires appropriate approvals
by SEBI. When the investor invests in an AMC, they are actually purchasing a portfolio of
assets that are being offered by the AMC. Post this, it is the decision of the fund manager
who has to look after the investment decision and whether or not the investments made
will be beneficial to the investors.
When it comes to selecting a fund for investment, investors prefer the funds which are
managed by well-known AMC’s. Thus it is important to evaluate the market reputation of
the AMC.
Below is a list of the steps which an AMC takes:
Asset Allocation
In order to maintain the investor’s trust and confidence, the AMC has to carefully make
the investment in various equity and debt instruments. However, the timing of buying or
selling depends on the decision of the fund manager who manages the funds and allocates
the pooled amount in various asset classes.
Research and Portfolio construction
This is perhaps the most crucial decision which is done by the AMC. It takes ample time
and investment to make thorough market research and create a portfolio based on the
prevalent market situations and economic factors. A Fund Manager, along with his or her
team of analysts, makes its market analysis and arrives at a conclusion. Fund manager’s
aim to make a balanced portfolio that should be able to perform even in the worst of the
time. Considering the risk factors associated with each asset class, a portfolio is
constructed.
Performance Review
The AMC’s have to answer to investors for the investments made by them. In order to
avoid a bad reputation and criticism from investors, it becomes important to carefully
assess the performance of the fund on a periodic basis considering factors like NAV, fund
returns, etc.
SYSTEMATIC INVESTMENT PLAN – SIP
Systematic Investment Plan (SIP) is an investment plan (methodology) offered by Mutual
Funds wherein one could invest a fixed amount in a mutual fund scheme periodically, at
fixed intervals – say once a month, instead of making a lump-sum investment.
The SIP instalment amount could be as little as ₹500 per month. SIP is similar to a
recurring deposit where you deposit a small /fixed amount every month.
SIP is a very convenient method of investing in mutual funds through standing
instructions to debit your bank account every month, without the hassle of having to
write out a cheque each time.
SIP has been gaining popularity among Indian MF investors, as it helps in Rupee Cost
Averaging and also in investing in a disciplined manner without worrying about market
volatility and timing the market. Systematic Investment Plans offered by mutual funds
are easily the best way to enter the world of investments over the long term.
Common sense suggests that “Buying low and selling high” is perhaps the best way to get
good returns on your investments. But this is easier said than done, even for the most
experienced investors. There are many factors at play when it comes to any market - debt
or equity, and all of them are inextricably linked.
SIP is a simpler approach to long term investing is disciplining and committing to a fixed
sum for a fixed period and sticking to this schedule regardless of the conditions of the
market.
RUPEE COST AVERAGING
Rupee cost averaging, as this practice is called, in a way ensures that you automatically
buy more units when the NAV is low and fewer when the NAV is high…e.g., an SIP of ₹1000
gets you 50 units when the NAV is Rs. 20, but gets you 100 units when the NAV is Rs.10.
The average cost for buying those 150 units would be Rs. 2000/150 units i.e. ₹ 13.33.
However, please remember that the Rupee cost averaging does not assure profit, nor does
it protect one against investment losses in declining markets. It merely ensures
disciplined & regular investment in stock markets, which helps overcome the natural
impulse to stop investing in a falling or a depressed market or investing a lot, when
markets are buoyant and euphoric.
THE POWER OF COMPOUNDING
There is a great advantage with long-term investments, namely, compounding which is
considered one of the greatest mathematical discovery.
To put it in simple words, compounding is when the interest (or income) you earn is
reinvested in the original corpus and accumulated corpus continues to earn (& grow).
Every time this happens, your investment keeps growing, paving the way for a systematic
accumulation of money, multiplying over time.
To illustrate, a small amount of ₹1000 invested every month at an interest rate of 8% for
25 years would give you ₹ 9.57 Lakh! That means your investment of just ₹ 3 Lakh would
have grown three times over!
Here is a graph that represents the same for a time period of 15 years.
Exchange Traded Funds (ETF)
An exchange traded fund (ETF) is an investment product - similar to a mutual fund - that
trades on a stock exchange. Most ETFs track major stock indices or industry sub-sectors,
which allows investors to get exposure to either the entire market or specific sectors with
a single purchase. Unlike a mutual fund, an ETF's holdings - the investments it makes -
are always known (its components are simply the weighted components of the index it
tracks).
While some mutual funds often aim to "beat" the market or the sector they use as a
benchmark, ETFs are typically designed to provide investors with the same performance
of the stated benchmark (whether good or bad). Because mutual funds seek to
outperform their benchmark, they are described as being "actively managed" (the
portfolio managers will make buying and selling decisions based on their views of
particular securities in the benchmark), whereas ETFs use "passive management".
As a result, ETFs often charge lower fees than mutual funds, and can be inexpensive ways
for investors to invest in the market as whole or specific sub-sectors. ETFs also have
lower expense ratios because they are not actively managed. In most cases, this results in
lower management fees and lower turnover costs.
ETFs are just what their name implies: baskets of securities that are traded, like
individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be
bought and sold throughout the trading day like any stock.
Most ETFs charge lower annual expenses than index mutual funds. However, as with
stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant
drawback for those who trade frequently or invest regular sums of money.
Types of ETFs
• Market ETFs: Designed to track a particular index like the S&P 500 or NASDAQ
• Bond ETFs: Designed to provide exposure to virtually every type of bond
available; US Treasury, corporate, municipal, international, high-yield and several
more
• Sector and industry ETFs: Designed to provide exposure to a particular industry,
such as oil, pharmaceuticals, or high technology
• Commodity ETFs: Designed to track the price of a commodity, such as gold, oil, or
corn
• Style ETFs: Designed to track an investment style or market capitalization focus,
such as large-cap value or small-cap growth
• Foreign market ETFs: Designed to track non-US markets, such as Japan’s Nikkei
Index or Hong Kong’s Hang Seng index
• Inverse ETFs: Designed to profit from a decline in the underlying market or index
• Actively managed ETFs: Designed to outperform an index, unlike most ETFs,
which are designed to track an index
• Exchange-traded notes (ETNs): In essence, debt securities backed by the
creditworthiness of the issuing bank, which were created to provide access to
illiquid markets; they have the added benefit of generating virtually no short-term
capital gains taxes
• Alternative investment ETFs: Innovative structures, such as ETFs that allow
investors to trade volatility or gain exposure to a particular investment strategy,
such as currency carry or covered call writing
How ETFs work
An ETF is bought and sold like a company stock during the day when the stock exchanges
are open. Just like a stock, an ETF has a ticker symbol and intraday price data can be easily
obtained during the course of the trading day.
Unlike a company stock, the number of shares outstanding of an ETF can change daily
because of the continuous creation of new shares and the redemption of existing shares.
The ability of an ETF to issue and redeem shares on an ongoing basis keeps the market
price of ETFs in line with their underlying securities.
Although designed for individual investors, institutional investors play a key role in
maintaining the liquidity and tracking integrity of the ETF through the purchase and sale
of creation units, which are large blocks of ETF shares that can be exchanged for baskets
of the underlying securities. When the price of the ETF deviates from the underlying asset
value, institutions utilize the arbitrage mechanism afforded by creation units to bring the
ETF price back into line with the underlying asset value.
➢ The Advantages of ETF :-
• Buy and sell just like a share
• Buy and sell at real time prices
• One can put limit orders
• Delivery in your demat account(T+2)
• Minimum trading lot just one unit
• Provides Diversification
• No Exit Load
• Returns on par with Market/Index
• Cost Advantage : The only costs for an investor are brokerage
commissions, management fees
Dis-advantages:-
• Investors need to have a demat and a trading account
• ETFs they have to pay a brokerage (usually ETFs they have to pay a brokerage
(usually around 0.50%). This is considered high for a around 0.50%). This is
considered high for a new short term Investor
• Advantages in Local ETF disappear in Foreign ETF
