Exchange Traded Funds

Definition and features of the Exchange Traded Funds

Exchange traded funds popularly also known as ETFs, is a type of mutual fund wherein, the corpus is invested in a basket of securities, which is being traded on an exchange.

Further, an Exchange traded fund investments are being made either on all the securities or on a sample of the representative securities that are being traded in the said index.The exchange traded funds employ the process of arbitration during trading, in order to keep its trading value in sync with the values of the underlying stocks, which makes up the portfolio.

All the Exchange Traded Funds in India are regulated by the Association of Mutual Funds of India (AMFI). Further, the Association of Mutual Funds of India (AMFI) operates in accordance with the laid down guidelines of the Securities and Exchange Board of India (SEBI). The Chapter III of the Income Tax Act, 1961 provides tax exemption on investment on Exchange Traded Funds. The rise of the Indian capital markets and increasing numbers of exchange has propelled the growth in the numbers of Exchange traded funds in India.

Exchange Traded Funds - advantages

One of the striking features of the Exchange Traded Funds is that they are not volatile like other mutual funds and thus remain much more stable during bearish market. Further, Exchange Traded Funds cost less and are transparent. Furthermore, these funds can be traded and as well as diversified simultaneously.

To knoe more about Classification of Mutual Funds click on the following links:

Last Updated 06/30/2011

>> More About Mutual Fund