Introduction

to Exchange
Traded
Funds
(ETFs)
 Disclaimer
 Information contained in this presentation is as on May 09,
2022.

 The information contained in this presentation is only for

Educational and Awareness Purposes related to securities
market .

 This presentation is only for Educational and Investor

Awareness Programs and shall not be used for any legal
interpretations.

 SEBI or Stock Exchanges or Depositories shall not be

responsible for any damage or loss to any one of any
manner from use of this material.

 Suggestions or feedbacks, if any, may please be sent by

mail to [email protected].
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 Flow of Presentation
1. What are ETFs? - Overview;
2. Advantages of investing in ETFs;
3. Difference between ETFs, Stocks & MFs;
4. Types of ETFs;
5. How to apply for ETFs – during NFO;
6. How to invest in ETFs at SEs (Post closure of NFO);
7. iNAV and Market / Traded price of ETF;
8. Redemption of ETF units by AMC;
9. Buying ETFs directly from AMC (Bulk deal);
10. Tax on ETF Trades, etc.;
11. Points to ponder before investing.
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 What are ETFs? Overview

SHARES EXCHANGE TRADED FUND (ETF) MUTUAL FUND

ETF are like diversified mutual funds that are listed

and traded on the stock exchange

Operationally are like Mutual Fund

Trade like Shares

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 What are ETFs? Overview

 Funds collected by ETF are invested in securities

(debt/equity)/assets (gold/silver) which forms part of an
Index/Asset Class.

 ETFs try to follow or replicate the performance of benchmark

index

 Objective of ETF is to track the returns of a particular Index,

viz. Nifty 50 or Sensex 30,

 It will invest in the securities which are part of Nifty 50 or

Sensex 30 in the same proportion as that of the index.

 Holder of ETF units gets exposure similar to that of buying

shares of the Index

 Thereby ETF holder gets benefits of diversification at a 5

lower cost.
 What are ETFs? Overview
 Investment style of ETF units is called Passive Investing.
 What is Active Investing Vs. Passive Investing.
 Active Investing -
 Fund manager invest and tracks returns of the selected
securities (Stock picking based on analysis and judgement).
 Main purpose of fund is to beat benchmark index.
 To get Alfa Returns (i.e. To get returns above benchmark index).
 Rely on professional fund managers who manage investments.

 Passive Investing -
 Fund manager invest in the securities which are part of Index
(No stock picking).
 Main aim of fund is to replicate or follow the returns of Index by
making investment in the same proportion as that of the index.
 To replicate the return of the benchmark index by minimizing
the tracking error.
 No Active fund management required.
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 Investing in ETFs

 Like a fund…
 Like a stock…

• Constructed to track an • Trading flexibility intraday on

index the exchange

• Open ended mutual fund • Real time price

• Lower expense ratio • Put limit orders

generally as compared to an • Minimum trading lot is just 1
active fund unit
• Lower turnover • Delivery into your Demat
• More transparent account

Index Fund Stocks

ETF
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 Advantages of ETFs

Investors in ETFs can benefit both the flexibility of a stock as

well as the diversification

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 Difference between ETFs, Stocks & Mutual
Funds
Functionality ETFs Stocks MF
Units
 Real time trading & pricing throughout market
hours
 Can be purchased through brokers and /or
online trading a/c
 Can be traded real time on the Exchange
platform
 Is Diversification possible with a single unit

 Returns at par with the market / Index (subject

to applicable fees and expenses)

 Paper less investing

 Exit Load

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 Types of ETFs

Equity / Index
ETFs Gold / Silver
ETFs

Global Equity
Debt ETFs
ETFs

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 Equity ETFs

 Equity ETFs are exchange-traded funds that seek to replicate and

track a benchmark index like SENSEX, NIFTY, etc., as closely as
possible;

 Equity ETFs offers instant diversification in a tax efficient and cost

effective investment.

 The price fluctuations in Equity ETFs are directly linked to the

index it follows,

 Equity ETF returns are not exactly the same as the benchmark
index due to tracking error.

 Tacking error is the annualized standard deviation of the

difference in daily returns between the underlying Index/goods
and the NAV of the ETF calculated on a rolling basis.

 The Lower the tracking error means, more is the accurate

replicating of the index . 11
 Gold ETFs

 Gold ETF aims to track the physical gold price.

 Gold ETFs are units representing physical gold.

 Gold ETFs – Having flexibility of stock investment and the

simplicity of gold investments.

 Buying an Gold ETFs means an Investor is purchasing

Gold in an electronic form.

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 Debt ETFs & Global Equity ETFs

 Debt ETF -

 Debt ETFs invest according to specific Debt Index.

 Debt ETFs also tracks different fixed income

securities depending on an underlying fixed income
index like Nifty 8-13 years G-Sec Index or NIFTY 4-8
years G-Sec Index.

 Global Equity ETF -

 Allow the investors to take an exposure to

international indices.
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 How to invest in ETFs?

 Investor need to have three accounts

Trading Demat
Bank Account Account
Account with Brokers with DPs

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 How to invest in ETFs?
NFO On going offer

Buy/Sell
Investor Stock Exchanges
Buy/Sell

Subscription

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 How to invest in ETFs

 During New Fund Offer (NFO) -

 ₹ 500/- or such other minimum amount

 Post Closure of Fund Offer, Ongoing Basis -

 On the Exchange :

1 Unit & in multiples thereof

 Directly with Fund :

Large investors can directly purchase the units from

the AMC in stead of buying from exchange

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 How to apply for ETFs-during NFO

 How to Apply:

 ETF Units available only in dematerialized (electronic)

mode.

 Beneficiary account with a Depository Participant of

NSDL/CDSL.

 Following details to be indicated in the application

form :

 Depository Participant’s name,

 Depository Participant’s ID Number,

 Beneficiary account number of the applicant with DP.

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 How to apply for ETFs-during NFO

 Allotment:

 Intimation of allotment sent within five days from date

of allotment.

 ETF Units are credited in DP account.

 Listing:

 Listing of ETF units on the Stock Exchanges.

 within 5 working days from the date of allotment.

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 How to invest in ETFs at Stock Exchange
(Post close of NFO)
 Buy / Sell ETF units at stock exchange -
 Similar to buy / sell of shares in Secondary market.
 Investor need to place buy / sell order with stock broker.
 Investors can buy or sell at stock exchange post listing of ETF
units .
 Minimum number of units for buy / sell : 1 (one) unit.

 Settlement of trades in ETF -

 Buying of ETF units -

o Payment of funds before the funds pay-in day of the
settlement cycle.
o ETF units get credited in investor’s demat account after
pay-out day.
 Selling of ETF units -
o Delivery of ETF units to broker before securities pay-in day.
o Payment gets credited in investor’s bank account after
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pay-out day.
 iNAV and Market /Traded price of ETF
 Net Asset Value (NAV) of ETF -
 Value of each unit of ETF calculated by AMC of ETF.
 Market Price / Traded price of ETF -
 Price at which ETF units brought / sold at stock exchange.
 Price of ETF changes, based on market demand or supply of ETF.
o Price increase, if there are more buyers of ETF.
o Price decrease, if there are more sellers of ETF.
 Market price is premium / discount if traded price is more /less
than NAV.
 What is iNAV (Indicative NAV)
 iNAV reported every 10-15 sec on the website of MF AMC during
market hours. Currently, iNAV for Gols and Silver ETFs are also
available on Exchange Platform.
 Before buying or selling decision, check iNAV of ETF units.
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 iNAV and Market /Traded price of ETF
Real Time Pricing
Live Quotes on Exchange site Real Time NAV on AMC site

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 Redemption of ETF Units by AMC

 In Normal case, Investor need to sell ETF units at Exchange through

trading account.

 However, investors can directly approach AMC for redemption of

ETF units, subject to the following conditions:

a) Traded price of the ETF units -

 is at discount of more than 3% to NAV for continuous 30

days.

b) Bid price quoted at exchange -

 is at discount of more than 3% NAV for 7 consecutive days.

 No quotes are available on exchange for 3 consecutive

trading days.

 Total bid size on the Exchange is less than half of Creation

Units Size daily, averaged over a period of 7 consecutive 22

trading days.
Buying ETFs directly from AMC (Bulk deal)
Applicable to Investors having large funds:
 Investors willing to buy ETFs in bulk may deal with AMCs directly.
 This facility is not suitable for small investors.
 Creation of ETF units is defined for every ETF and displayed on the
AMC website.
 Creation Unit is a fixed number of ETF units, which is exchanged for
a basket of shares underlying the index called the "Portfolio
Deposit" and a "Cash Component".
 For e.g. to subscribe 10,000 units of an ETF with the Fund.
 Investor need to deposit a pre-defined underlying portfolio and
the cash component.
 In exchange of this portfolio and payment of a "cash component",
 Investor is allotted 10,000 units.
 This "in-kind" exchange of underlying portfolio for units is a
unique feature of ETFs.
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 Tax on ETF Trades

 Tax Structure on Capital Gains on Equity ETFs:

 Short-term capital gains are taxed at 15% along with surcharge and
other Cesses as applicable.
 For all long-term capital gains, an amount of up to ₹1 lakh is tax-
deductible, and a tax of 10% would be levied on any amount greater
than ₹1 lakh without indexation benefits.
 Tax Structure on Capital Gains on Gold, Debt and Other ETFs:
 Long-term capital gains tax of 20% plus cess with indexation benefits,
if held for more than 36 months.
 Short-term capital gains tax: As per the income-tax slab rate of the
investor.
 Securities transaction tax (STT):
 If you buy ETFs there is no securities transaction tax (STT), but when
you sell then STT is applicable.

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 Points to Ponder before investing
 Underlying Index: Investors need to first decide on the market in which
they wish to invest, i.e. Benchmark Index as a whole or a Specific
Sectoral Index Gold/ Silver, etc.  iNAV: Before buying or selling
1 decision, check iNAV of ETF units.
 Total Expense Ration
(TER): Different funds 3  Tracking Error : ETFs
tracking the same index can 2 must closely track the
have different expense ratios benchmark. An ETF with
(annual fee a fund charges to lower tracking error to its
cover its expenses). benchmark should be
preferred to others.

 Liquidity: When considering ETFs, other than TER and Tracking Error,
liquidity is also very important. One should prefer ETFs with greater
liquidity.
 Assets Under Management (AUM) of an ETF is calculated by
multiplying the shares outstanding by the market price per share. ETFs
with greater AUM tend to have more liquidity.
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 Additional Information
 For further information, you may visit the following
web-sites and Mobile App:
 w w w. s e b i . g o v. i n /
 h t t p s : / / i n v e s t o r. s e b i . g o v. i n /
 Saa₹thi App
 For Grievance Redressal, you may visit following
website:
 w w w. s c o re s . g o v. i n/
Or, you may call SEBI at following Toll-free
Helpline Numbers from 9:00am to 6:00pm on all
Helplines are available in 8
Languages:
days (excluding declared holidays
English,in the state
Hindi, of Gujarati,
Bengali,
Maharashtra): Marathi, Kannada, Telugu and
Tamil
SEBI : HAR 1800 266 7575
 INVESTOR KI TAAQAT 26


THANK YOU

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