This is a new class of products ushered in by the Benchmark Mutual Fund. The concept of ETF is very simple. The AMC approaches those heavy investors in the equities (asset class) to be the contributors. The corpus thus raised is divided into treadable units called creation units and listed on the stock exchange. This group of applicants ensure supply of units anytime. They buy and sell units in the proportion of scrips in the Index and not in cash. The Mutual Fund then sell the portfolio to common investors like you and me who enter and exit in cash mode trading through a broker with the stock exchange. With ETF, you get live NAV than normal MF where you get historic NAV; No tracking error as in Index Funds. Thus ETFs combine benefits of diversification to the full extent, if you are on a broad market Index.
Today we have ETFs on different indices as asset classes.
Read in malayalam the original artice of Business Manorama dated February 05, 2007
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