What are the different types of exchange traded funds?

ETF or exchange traded funds were launched in the early 90s in the US and since then they have been gaining popularity all over the globe, especially in the developed markets like USA and UK. In India too, in the last 4-5 years the AUM of ETF mutual funds have grown significantly and become a popular product to invest in especially by the HNIs or evolved mutual fund investors. 

As you may know, Mutual funds India offers two types of mutual fund investment options – They are active mutual funds and passive mutual fund schemes. The ETF mutual fund falls into the passive category of funds.

What are exchange traded funds?

ETF mutual fund invests in a basket of securities which replicates a particular index or sector or commodities. For example, a NIFTY50 ETF will invest the stocks in the same proportion as in the NIFTY 50 Index. For example, a stock having 2% weight in the NIFTY 50 index will also have the same weight, i.e. 2% in the NIFTY 50 ETF.  

To invest in an ETF, you should have a demat and trading account as ETFs are traded only in stock exchanges, just like any other shares. You can buy and sell ETF mutual fund schemes during the market trading hours.

The important point to be noted here is that the price of ETFs keeps fluctuating during the trading hours based on the volume of buy and sell. This is just opposite to the active mutual fund schemes where the transactions are executed based on the daily NAV which is declared at the end of the day (after market closure). As you may know mutual fund NAV is declared after the market closure, during late evening, by the respective AMCs and posted on the AMFI India website. If you have invested in an ETF, you should refer to the ETF scheme NAV from here, but chances are that the NAV published on the AMFI website and the ETF NAV you got could be different as you get the ETF fund on the price quoted in the stock exchanges during the trading hours.

What are different types of exchange traded funds?

Most investors think that an ETF mutual fund means only the different types of benchmark index exchange traded funds. Most people think ETF scheme means Sensex, Nifty and Gold ETFs, but that is not the case. There are many more types of ETF mutual fund which you can see below – 

• Stock market Index ETFs: These are the most common ETFs – this include popular ETFs like Sensex, Nifty, Sensex, Nifty Next 50, Nifty Midcap150, BSE 500 and so on. 

• Sector ETFs: These ETFs track sectors like midcap, small cap, bank, consumption, PSU bank and IT etc.
• Liquid ETFs: These ETFs work like liquid funds as they invest in money market securities. 
• International ETFs: International exchange traded funds track indexes like S&P 500, Nasdaq 100 and Hang Seng etc.
• Commodity ETFs: These are mainly Gold and Silver ETFs which are backed by physical Gold and Silver. These ETFs provide opportunity to invest in these two commodities without incurring any storage cost or making charges.