The Rs.14-trillion worth mutual funds (MF) industry in India is slowly warming up to exchange-traded funds (ETF). Edelweiss Asset Management Ltd has launched its third ETF, called Edelweiss ETF-Nifty Quality 30 (ENQ30).
WHAT IS IT?
An ETF is a passively-managed MF scheme that consists of a basket of securities, like equity shares of companies, which form part of its benchmark index and also in exactly the same proportion. An ETF’s mechanism is different than an index fund’s.
In an index fund, while the fund manager rebalances the portfolio on a daily basis, depending on how the weightages of the benchmark’s underlying stocks move, the ETF comes with a twist. A unit of ETF is ‘created’ only when someone (typically a market marker; in ETF parlance) exchanges the underlying securities—in the same proportion and quantity as it takes to make one such ETF unit—with the fund house for a unit. The market maker then makes these ETF units available on the stock exchange where investors can buy from.
