ETFs are a collection of marketable securities that track an underlying index and combine features of mutual funds and stocks. They invest in stocks and/or bonds based on the underlying benchmark index. Though they are similar to index funds, but they are bought and sold at stock exchanges, and not bought or redeemed with mutual funds.
Investors and traders can buy units of ETFs through a dematerialised and trading account with a broker. ETFs are traded on the stock exchange and come with a settlement of T+1 and buy and/or sell throughout the working hours of the day.
Types of ETFs
Equity ETFs: These are available for trading on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Investors can buy or sell them at market price on a real-time basis. The minimum investment quantum is one unit. Investors can buy into multiple companies with one fund, in the same ratio as the underlying index, and get the benefit of diversification.
Debt ETFs: These provide investors with exposure to fixed-income instruments, such as government bonds, corporate bonds and debentures. Investors can buy or sell them in real time at the exchange.
Commodity ETFs: These are passively managed funds tracking an underlying asset, such as gold and silver. Though there are multiple derivative trading contracts available at commodity exchanges, such as for crude oil, jeera, and others, ETFs are limited to gold and silver, as of now.
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