Exchange Trading Funds, ETFs, are passive or active investment tools that track the performance an index. Fund houses are financial pools that pool together the resources of many investors to buy tradable monetary asset. They are not trying to outperform the index, but rather aim to match its composition.
ETF prices fluctuate daily. Their value is determined by the net asset value of their component. Their popularity has been due to their higher liquidity and lower fees.
ETFs share the same features as mutual funds and shares. These funds are traded on stock exchanges and can be bought or sold according to demand and supply factors.
Their price is determined by the net asset value and underlying assets, as we have discussed. The overall performance of an ETF will determine the final dividend the shareholders receive.
After carefully reviewing the current stock exchange conditions, portfolio managers manage them. This type of ETF targets companies with high potential.
ETFs passively managed mirror the trending indexes. They only invest in companies that are at the top of the charts.
This category includes companies that invest in shares and other forms of equity.
Trading in physical gold assets is part of the Gold s ETF s. You can have gold on paper by investing in these companies without worrying about asset protection.
These companies deal in instruments that offer fixed returns like government bonds.
Investing in currencies that are likely perform well in the future is a good way to attract investors. Exchange rate fluctuations are the key to these gains. They are also affected by the political and economic situation of countries and interrelationships.
ETF taxdifferences on equity-oriented and not-equity ETFs. They are subject to Securities Transaction Tax.
Index ETFs are equity-oriented schemes. Capital gains on them less than 365 calendar days are subject to 15% plus 4 percent CESS. Units held for longer than one year are subject to 10 percent tax, with no indexation benefits. ETF tax on long-term capital gains above Rs. 1 lakh is null
Non-equity ETFs can be used to invest in gold and international ETFs. ETF tax is applied to short-term gains of less than 36 months. This rate is the income tax slab rate. Long term capital gains exceeding one year are subject to 20% tax after indexation.
ETFs have many advantages.
ETFs offer great diversification and can track more stocks. One ETF may give you exposure to a variety of market segments and a group of equities from different sectors.
ETFs offer diversification and liquidity, but they do not have the same benefits as equities. This is illustrated by the following:
ETF trading is similar to stock trading. You can track the approximate daily price changes through the ticker symbol. Stock websites often offer mobile apps that allow investors to see price fluctuations in real time.
ETFs that are passively managed attract a lower capital gains tax, and thus are more tax efficient. ETFs can also be used to buy and sell shares. This is known as in-kind redemption. They are exempt from tax.
Many investors use ETFs to gain exposure in multiple sectors. They can provide huge returns if used properly.