Exchange-traded funds
The open ended financial and investment companies, known as Exchange-Traded funds, or, ETFs engage in exchange trading that enable them to be traded anytime by duplicating a portfolio called SPY and a market sector dealing with energy, or, technology. These Exchange-traded funds are also into duplication of portfolios regarding commodities used in investment sectors, such as Gold, or, Petroleum. The boom is seen in the ETF lines of trading and the total number of Exchange-traded funds have increased in number from about 100 to almost three folds by 2006.
The legal structure of Investments and exchange trade works by the following principals, or, guidelines:
1.An exchange list maintenance with the ability to trade continually.
2.These should be index linked and not so much actively managed.
3.Dynamic rather static indexing strategies are maintained for the functioning of exchange trades.
4.Contributions and redemptions are shared in larger share blocks.
5.The value for these shares is derived from the value of the associated assets used in the Funds for exchange-trade.
Exchange-traded funds involve open ended collective investments. The basic structure for ETF involves investments that are:
Diversification of the exchange trading benefits
Low cost investments
Investments characterized by low turnover indexes.
These features are for both the institutional investors and the retail investors in the exchange trade. The basic functioning of the Exchange-traded funds is done by representing ownership shares in funds, unit investment associated trust and depository receipts holding portfolios of the common stocks. These stocks track the performance and the dividend yields of specified indexes with either the sector of the broad market, or, the international sector. The opportunity extended to the investors by the Exchange-traded funds is to buy the entire stock holding portfolio and also to sell them involving a single security formality scheme. This scheme practiced by the ETFs in floating their funds for exchange trade provides several opportunities to these investors as discussed above. Similar to an index mutual system of funds, ETFs are all priced set by the world trade standards and can be transacted without any hassles based on the movement pattern of the daily stock. These Exchange-traded funds can also be sold,or, bought on customer friendly compromising margins.
Nowadays, the single security formality associated Exchange-traded funds can track and index the performance of a large number of index funds, out of which the NSE and Nifty are worth mentioning. The portfolios of the stocks ready to trade that are maintained by the Exchange-traded funds can be such designed that they can track only one specific index fund. The Exchange-traded funds can help the investors in maintaining a diversified portfolio that can be easy to track.
Some of the advantages of the ETF used in index fund tracking and bui9liding up a well diverse portfolio are:
Ultimate diversified trading
All day long hassle free investment and exchange trade
Can be sold and bought on marginal lines
Easy tracking of index and sector like the BSE Sensex, Nifty, NSE, etc
Low turnover indulges in safer trade and easily approached tax efficiency
Low expense is maintained in the trade
Trading advantages are there involving any brokerage firm
Thus the Exchange-traded funds help in overall trading flexibility, low costs and premier performance in stock trafficking based on the market standards.