SyBBI Name Roll no. Exchange Traded Funds INTRODUCTION : An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETF’s track an index, such as the Dow Jones Industrial Average or the S&P 500. ETF’s may be attractive as investments because of their low costs, tax efficiency, and stock-like features. In a survey of investment professionals conducted in March 2008, 67% called ETF’s the most innovative investment vehicle of the last two decades and 60% reported that ETF’s have fundamentally changed the way they construct investment portfolios. Only so-called authorized participants (typically, large institutional investors) actually obtain or redeem shares of an ETF directly from the fund manager, and only then in creation units, large blocks of tens of thousands of ETF shares that can be exchanged in- kind with baskets of the underlying securities. Authorized participants may hold the ETF shares or they may act as market makers on the open market, using their ability to exchange creation units with their underlying securities to provide liquidity of the ETF shares and help ensure that their intraday market price approximates the net asset value of the underlying assets. Other investors, such as individuals using a retail brokerage, trade ETF shares on this secondary market. An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. ETF’s have been available in the US since 1993 and in Europe since 1999. ETF’s traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETF’s. STRUCTURE : ETF’s offer public investors an undivided interest in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on a securities exchange through a broker-dealer. Unlike traditional mutual funds, ETF’s do not sell or redeem their individual shares at net asset value, or NAV. Instead, financial institutions purchase and redeem ETF shares directly from the ETF, but only in large blocks, varying in size by ETF from 25,000 to 200,000 shares, called "creation units." Purchases and redemptions of the creation units generally are in kind, with the institutional investor contributing or receiving a basket of securities of the same type and proportion held by the ETF, although some ETF’s may require or permit a purchasing or redeeming shareholder to substitute cash for some or all of the securities in the basket of assets. The ability to purchase and redeem creation unit’s gives ETF’s an arbitrage mechanism intended to minimize the potential deviation between the market price and the net asset value of ETF shares. Existing ETFs have transparent portfolios, so institutional investors will know exactly what portfolio assets they must assemble if they wish to purchase a creation unit, and the exchange disseminates the updated net asset value of the shares throughout the trading day, typically at 15-second intervals. In the United States, most ETF’s are structured as open-end management investment companies (the same structure used by mutual funds and money market funds), although a few ETF’s, including some of the largest ones, are structured as unit investment trusts. ETF’s structured as open-end funds have greater flexibility in constructing a portfolio and are not prohibited from participating in securities lending programs or from using futures  and options in achieving their investment objectives. Under existing regulations, a new ETF must receive an order from the Securities and Exchange Commission, or SEC, giving it relief from provisions of the Investment Company Act of 1940 that would not otherwise allow the ETF structure. In 2008, however, the SEC proposed rules that would allow the creation of ETF’s without the need for exemptive orders. Under the SEC proposal, an ETF would be defined as a registered open-end management investment company that: Issues (or redeems) creation units in exchange for the deposit (or delivery) of basket assets the current value of which is disseminated on a per share basis by a national securities exchange at regular intervals during the trading day; Identifies itself as an ETF in any sales literature; Issues shares that are approved for listing and trading on a securities exchange; Discloses each business day on its publicly available web site the prior business day's net asset value and closing market price of the fund's shares, and the premium or discount of the closing market price against the net asset value of the fund's shares as a percentage of net asset value; and Either is an index fund, or discloses each business day on its publicly available web site the identities and weighting of the component securities and other assets held by the fund. The SEC rule proposal would allow ETF’s either to be index funds or to be fully transparent actively managed funds. Historically, all ETF’s in the United States have been index funds. In 2008, however, the SEC began issuing exemptive orders to fully transparent actively managed ETF’s. The first such order was to PowerShares Actively Managed Exchange-Traded Fund Trust, and the first actively managed ETF in the United States was the Bear Stearns Current Yield Fund, a short-term income fund that began trading on the American Stock Exchange under the symbol YYY on 25 March 2008. The SEC rule proposal indicates that the SEC is not suggesting that it will not consider future applications for exemptive orders for actively managed ETF’s that do not satisfy the proposed rule's transparency requirements. Some ETF’s invest primarily in commodities or commodity-based instruments, such as crude oil and precious metals. Although these commodity ETF’s are similar in practice to ETF’s that invest in securities, they are not "investment companies" under the Investment Company Act of 1940. Publicly traded grantor trusts, such as Merrill Lynch's HOLDRS securities, are sometimes considered to be ETF’s, although they lack many of the characteristics of other ETF’s. Investors in a grantor trust have a direct interest in the underlying basket of securities, which does not change except to reflect corporate actions such as stock splits and mergers. Funds of this type are not "investment companies" under the Investment Company Act of 1940. HISTORY : ETFs had their genesis in 1989 with Index Participation Shares, an S&P 500 proxy that traded on the American Stock Exchange and the Philadelphia Stock Exchange. This product, however, was short-lived after a lawsuit by the Chicago Mercantile Exchange was successful in stopping sales in the United States. A similar product, Toronto Index Participation Shares, started trading on the Toronto Stock Exchange in 1990. The shares, which tracked the TSE 35 and later the TSE 100 stocks, proved to be popular. The popularity of these products led the American Stock Exchange to try to develop something that would satisfy SEC regulation in the United States. Nathan Most, an executive with the exchange, developed Standard & Poor's Depositary Receipts (AMEX: SPY), which were introduced in January 1993. Known as SPDRs or "Spiders," the fund became the largest ETF in the world. Other U.S. ETFs quickly followed based on other broad market indexes. Barclays Global Investors, a subsidiary of Barclays plc, entered the fray in 1996 with World Equity Benchmark Shares, or WEBS, subsequently renamed iShares MSCI Index Fund Shares. WEBS tracked MSCI country indexes, originally 17, of the funds' index provider, Morgan Stanley. WEBS were particularly innovative because they gave casual investors easy access to foreign markets. While SPDRs were organized as unit investment trusts, WEBS were set up as a mutual fund, the first of their kind. In 1998, State Street Global Advisors introduced the "Sector Spiders," which follow the nine sectors of the S&P 500. Since then ETFs have proliferated, tailored to an increasingly specific array of regions, sectors, commodities, bonds, futures, and other asset classes. As of May 2008, there were 680 ETFs in the U.S., with $610 billion in assets, an increase of $125 billion over the previous twelve months. INVESTMENT USES : ETFs generally provide the easy diversification, low expense ratios, and tax efficiency of index funds, while still maintaining all the features of ordinary stock, such as limit orders, short selling, and options. Because ETFs can be economically acquired, held, and disposed of, some investors invest in ETF shares as a long-term investment for asset allocation purposes, while other investors trade ETF shares frequently to implement market timing investment strategies. Among the advantages of ETFs are the following: Lower costs - ETFs generally have lower costs than other investment products because most ETFs are not actively managed and because ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. ETFs typically have lower marketing, distribution and accounting expenses, and most ETFs do not have 12b-1 fees. Buying and selling flexibility - ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds and unit investment trusts, which can only be traded at the end of the trading day. As publicly traded securities, their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade. Tax efficiency - ETFs generally generate relatively low capital gains, because they typically have low turnover of their portfolio securities. While this is an advantage they share with other index funds, their tax efficiency is further enhanced because they do not have to sell securities to meet investor redemptions. Market exposure and diversification - ETFs provide an economical way to rebalance portfolio allocations and to "equitize" cash by investing it quickly. An index ETF inherently provides diversification across an entire index. ETFs offer exposure to a diverse variety of markets, including broad-based indexes, broad- based international and country-specific indexes, industry sector-specific indexes, bond indexes, and commodities. Transparency - ETFs, whether index funds or actively managed, have transparent portfolios and are priced at frequent intervals throughout the trading day. Some of these advantages derive from the status of most ETFs as index funds. TYPES OF ETF’S : Index ETFs Most ETFs are index funds that hold securities and attempt to replicate the performance of a stock market index. An index fund seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index. Some index ETFs, known as leveraged ETFs or short ETFs, use investments in derivatives to seek a return that corresponds to a multiple of, or the inverse (opposite) of, the daily performance of the index. As of February 2008, index ETFs in the United States included 415 domestic equity ETFs, with assets of $350 billion; 160 global/international equity ETFs, with assets of $169 billion; and 53 bond ETFs, with assets of $40 billion. Some index ETFs invest 100% of their assets proportionately in the securities underlying an index, a manner of investing called "replication." Other index ETFs use "representative sampling," investing 80% to 95% of their assets in the securities of an underlying index and investing the remaining 5% to 20% of their assets in other holdings, such as futures, option and swap contracts, and securities not in the underlying index, that the fund's adviser believes will help the ETF to achieve its investment objective. For index ETFs that invest in indexes with thousands of underlying securities, some index ETFs employ "aggressive sampling" and invest in only a tiny percentage of the underlying securities. Commodity ETFs Commodity ETFs invest in commodities, such as precious metals and futures. Among the first commodity ETFs were gold exchange-traded funds, which have been offered in a number of countries. Commodity ETFs generally are index funds, but track non-securities indexes. Because they do not invest in securities, commodity ETFs are not regulated as investment companies under the Investment Company Act of 1940 in the United States, although their public offering is subject to SEC review and they need an SEC no-action letter under the Securities Exchange Act of 1934. They may, however, be subject to regulation by the Commodity Futures Trading Commission. Currency ETFs In 2005, Rydex Investments launched the first ever currency ETF called the Euro Currency Trust (NYSE: FXE) in New York. Since then Rydex has launched a series of funds tracking all major currencies under their brand CurrencyShares. In 2007 Deutsche Bank's db x- trackers launched EONIA Total Return Index ETF in Frankfurt tracking the euro, and later in 2008 the Sterling Money Market ETF (LSE: XGBP) and US Dollar Money Market ETF (LSE: XUSD) in London. Actively managed ETFs Actively managed ETFs are quite recent and have been offered only since 25 March 2008 in the United States. The actively managed ETFs approved to date are fully transparent, publishing their current securities portfolios on their web sites daily. However, the SEC has indicated that it is willing to consider allowing actively managed ETFs that are not fully transparent in the future. The fully transparent nature of existing ETFs means that an actively managed ETF is at risk from arbitrage activities by market participants who might choose to front-run its trades. The initial actively traded equity ETFs have addressed this problem by trading only weekly or monthly. Actively traded debt ETFs, which are less susceptible to front-running, trade their holdings more frequently. The initial actively managed ETFs have received a lukewarm response and have been far less successful at gathering assets than were other novel ETFs. Among the reasons suggested for the initial lack of market interest are the steps required to avoid front- running, the time needed to build performance records, and the failure of actively managed ETFs to give investors new ways to make hard-to-place bets. Exchange-traded grantor trusts An exchange-traded grantor trust share represents a direct interest in a static basket of stocks selected from a particular industry. The leading example is Holding Company Depositary Receipts, or HOLDRS, a proprietary Merrill Lynch product. HOLDRS are neither index funds nor actively-managed; rather, the investor has a direct interest in specific underlying stocks. While HOLDRS have some qualities in common with ETFs, including low costs, low turnover, and tax efficiency, many observers consider HOLDRS to be a separate product from ETFs. Leveraged ETFs A leveraged exchange-traded fund, or simply leveraged ETF, are a special type of ETF that attempts to achieve returns that are more sensitive to market movements than a non- leveraged ETF. For instance, a bullish leveraged ETF might attempt to achieve daily returns that are 1.5, 2.0, 2.5, or 3.0 times more pronounced than the Dow Jones Industrial Average or the S & P 500. Leveraged ETFs require the use of financial engineering techniques, including the use of equity swaps, derivatives and rebalancing to achieve the . desired return Expedited Decay Leveraged ETFs have a potential costly problem of decay, because the value of the leveraged ETFs are based on the MOVEMENT of the underlying indices, and not based on the VALUE of the underlying indices. Example: Underlying index is trading at $100, a 3x bull ETF is current trading also at $100 Day 1: The underlying index goes up 10%, finishing the day at $110 The 3x ETF goes up 30%, finishing the day at $130 Day 2: The underlying index goes down 10%, finishing the day at $99 The 3x ETF goes down by 30%, finishing the day at $91 That is a decay of $8 more for the leveraged ETF compared to the index All leveraged ETFs naturally decay, and at two different time periods, while the underlying index may be trading at the same value, leveraged ETFs will trade at different values, with the lower value at the later period. This is true for both bull and bear leveraged ETFs. Due to decay, traditional investment strategies such as buy and hold, and averaging down, do not work to the same extent as they work on common stocks and unleveraged ETFs. Holding a leveraged ETF while its value is decreasing, to recover the value of the leveraged ETF, the underlying index has to be much higher than when it was dropping. POPULAR ETF’S : Standard & Poor's 500 Index Depository Receipts (SPY: AMEX) The first and still the biggest ETF, this inexpensive fund (pronounced Spiders) tracks the S & P 500 index, which is widely regarded as the standard for measuring large-capitalization U.S. stock market performance. Some selectivity by Standard & Poor's surrounds an otherwise methodical list of the 500 largest traded firms. Nasdaq-100 Index Tracking Stock (QQQ: AMEX) Tracks the Nasdaq-100 index, which includes 100 of the largest companies listed on The Nasdaq Stock Market based on market capitalization. It is widely perceived as a technology benchmark and includes computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies or investment companies. DIAMONDS Trust (DIA:AMEX) This popular ETF Tracks the Dow Jones Industrial Average, a benchmark of 30 blue chip stocks selected by The Wall Street Journal. The index is highly subjective and rather antiquated in its formula but serves as a good barometer for very large old-line US companies. iShares S & P 500 (IVV:AMEX) Barclays' slightly less expensive version of the SPDR tracks the S&P 500 index, which is widely regarded as the standard for measuring large-capitalization U.S. stock market performance. Some selectivity by Standard & Poor's surrounds an otherwise methodical list of the 500 largest traded firms. Standard & Poor's MidCap 400 SPDRs (MDY:AMEX) Tracks the S & P MidCap 400 index, which measures the performance of the mid-size company segment of the U.S. market and complements the S&P 500 seamlessly. iShares Russell 2000 (IWM: AMEX) Tracks the Russell 2000 index, a popular benchmark for mid- and small-cap companies. The Russell 2000 Index represents the second tier of U.S. equities, or companies with market values between $20 million and $300 million, which account for approximately 8 to 9 percent of the total market. Russell's methodology leads to relatively high turnover. iShares MSCI EAFE (EFA: AMEX) The iShares MSCI EAFE Index Fund tracks the MSCI EAFE Index, the top non-US large capitalization index that includes all major economies (except US) and no emerging markets. A popular way to gain foreign exposure. Total Stock Market VIPERs (VTI: AMEX) The Vanguard Group's core portfolio ETF tracks the Wilshire 5000 broad market index, which is one of the broadest index for the U.S. equity market, measuring the performance of the vast majority of all U.S. headquartered public companies. Considered an excellent proxy to the US economy as a whole. iShares SmallCap 600 (IJR:AMEX) Tracks the S & P SmallCap 600 index, which measures the performance of the small- capitalization US companies. Consumer Services Select Sector SPDR (XLV:AMEX) One of the many sector ETFs from S & P, which tracks consumer services companies selected from the S&P 500 index. WHY ETF’S ? Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. Want to invest in the market quickly and cheaply? ETFs are the most practical vehicle. They help the investor focus on what is most important, choice of asset classes. All the major stock indexes have ETFs based on them, including: Dow Jones Industrial Average Standard & Poor's 500 Index NASDAQ Composite There are ETFs for large US companies, small ones, real estate investment trusts, international stocks, bonds, and even gold. Pick an asset class that is publicly available and there is a good bet that it is represented by an ETF or will be soon. ETFs differ fundamentally from traditional mutual funds, which do not trade midday. Traditional mutual funds take orders during Wall Street trading hours, but the transactions actually occur at the close of the market. The price they receive is the sum of the closing day prices of all the stocks contained in the fund. Not so for ETFs, which trade instantaneously all day long and allow an investor to lock in a price for the underlying stocks immediately. ETFs are economical to buy and especially to maintain over the long-run, making them especially attractive for the typical buy-and-hold investor. Annual fees are as low as .09% of assets, which is breathtakingly low compared to the average mutual fund fees of 1.4%. Although investors must pay a brokerage transaction to purchase them, with discount brokers this becomes negligible with sizable trades. There are a few easy-to-avoid pitfalls to watch out for. Tax effects are also not to be ignored, and ETFs perform well after-tax. They can be margined, and options based on them allow for various defensive (or speculative) investing strategies. Their safety as a securities instrument (considered separately from the safety of any particular asset class they might represent) is considered the same as stock certificates themselves. Internally, ETFs are far more complex entities than mutual funds. A fascinating combination of players, including brokers, money managers and market specialists combine to make them run smoothly. Legally, ETFs are a class of mutual fund as they fall under many of the same Securities Exchange Commission rules that traditional mutual funds do. But their different structure means that the SEC has imposed different requirements from traditional mutual funds in how they are bought and sold. ETFs are index funds at heart, so investors are encouraged to study the philosophy of index investing which downplays stock picking in favor of buying the market. But unlike most traditional index funds, investors need not take a passive, buy-and-hold approach. ETFs are also becoming favorites of hedge funds and day traders who like to pull the trigger frequently. Both types of investors may coexist and in fact strengthen each other by lowering overall transaction costs. ETF’S COMAPARED TO MUTUAL FUNDS : ETF Comparison - While similar to an index mutual fund, ETFs differ from mutual funds in significant ways. Index Individual Attribute ETF Mutual Stock Fund Diversification Yes Yes No Traded throughout the day Yes No Yes Can be bought on margin Yes No Yes Can be sold short Yes No Yes Tracks an index or sector Yes Yes No Tax efficient as turnover is low Yes Possibly No Low Expense Ratio Yes Sometimes Not a factor Trade at any brokerage firm Yes No Yes ETF’s trade like shares while providing the diversification of managed funds. Their performance closely tracks the investment returns of the shares making up the index. Taxation ETF’s are structured for tax efficiency and can be more attractive than mutual funds. In the U.S., whenever a mutual fund realizes a capital gain that is not balanced by a realized loss, the mutual fund must distribute the capital gains to its shareholders. This can happen whenever the mutual fund sells portfolio securities, whether to reallocate its investments or to fund shareholder redemptions. These gains are taxable to all shareholders, even those who reinvest the gains distributions in more shares of the fund. In contrast, ETFs are not redeemed by holders (instead, holders simply sell their ETF shares on the stock market, as they would a stock, or effect a non-taxable redemption of a creation unit for portfolio securities), so that investors generally only realize capital gains when they sell their own shares or when the ETF trades to reflect changes in the underlying index. In most cases, ETFs are more tax-efficient than conventional mutual funds in the same asset classes or categories. In the U.K., ETFs can be shielded from capital gains tax by placing them in an Individual Savings Account or self-invested personal pension, in the same manner as many other shares. Costs ETFs trade on an exchange. Each transaction is subject to a brokerage commission. Commissions depend on broker, with various "plans" and different conditions, so no simple rule can be given. A "typical" schedule (at least in the United States) is $10 or $20, increasing slowly, or not at all, for larger orders. What is clear, however, due to the quasi- flat charge, amount invested has a great bearing; someone who wishes to invest $100 per month may have 10% of their money vaporized immediately, while for someone making a $200K investment, commission may be, essentially, negligible. Generally, mutual funds obtained directly from the fund company itself do not charge a brokerage fee. Where low or no-cost transactions are available, ETFs become very competitive. Most ETFs have a lower expense ratio than comparable mutual funds. Not only does an ETF have lower shareholder-related expenses but, because it does not have to invest cash contributions or fund cash redemptions, an ETF does not have to maintain a cash reserve for redemptions and saves on brokerage expenses. Mutual funds can charge 1% to 3%, or more; index funds are generally lower, while ETFs are almost always in the 0.1% to 1% range. Over the long term, these cost differences can compound into a noticeable difference. An expense ratio is computed as an annualised percentage of assets rate. ETFs are almost always compared to no-load funds, for the simple reason that, compared to loaded funds, there is no comparison. A person investing $100K in a load fund may have $5K disappear immediately, which is much higher than any conceivable brokerage commission. Mutual funds may also charge for too short a holding period, which is nonexistent with ETFs. In fact, ETFs can be bought and sold in the same day, although it's not obvious that it's a good idea. This has made ETFs subject of some criticism, since low fees may cause investors to trade more quickly. In this view, traditional mutual funds are doing investors a favor by charging fees such as front loads. Trading Perhaps the most important benefit of an ETF is the stock-like features offered. Since ETFs trade on the market, investors can carry out the same types of trades that they can with a stock. For instance, investors can sell short, use a limit order, use a stop-loss order, buy on margin, and invest as much or as little money as they wish (there is no minimum investment requirement). Also, many ETFs have the capability for options (puts and calls) to be written against them. Mutual funds do not offer those features. For example, an investor in a mutual fund can only purchase or sell at the end of the day at the mutual fund's closing price. This makes stop-loss orders much less useful for mutual funds, and not all brokers even allow them. An ETF is continually priced throughout the day and therefore is not subject to this disadvantage, allowing the user to react to adverse or beneficial market condition on an intraday basis. This stock-like liquidity allows an investor to trade the ETF for cash throughout regular trading hours, and often after-hours on ECNs. ETF liquidity varies according to trading volume and liquidity of the underlying securities, but very liquid ETFs such as SPDRs can be traded pre-market and after-hours with reasonably tight spreads. These characteristics can be important for investors concerned with liquidity risk. Another advantage is that ETFs, like closed-end funds, are immune from the market timing problems that have plagued open-end mutual funds. In these timing attacks, investors trade in and out of a mutual fund quickly, exploiting minor variances in price in order to profit at the expense of the long-term shareholders. With an ETF (or closed-end fund) such an operation is not possible—the underlying assets of the fund are not affected by its trading on the market. Investors can profit from the difference in the share values of the underlying assets of the ETF and the trading price of the ETF's shares. ETF shares will trade at a premium to net asset value when demand is high and at a discount to net asset value when demand is low. In effect, the ETF is providing a system for arbitraging value in the market. As the initial costs are one-off, the ETF vehicle offers some cost advantages over other forms of pooled investment vehicles. Criticism John C. Bogle, founder of The Vanguard Group, a leading issuer of index funds (and, since Bogle's retirement, of ETFs), has argued that ETFs represent short-term speculation, that their trading expenses decrease returns to investors, and that most ETFs provide insufficient diversification. He concedes that a broadly diversified ETF that is held over time can be a good investment. ETFs are dependent on the efficacy of the arbitrage mechanism in order for their share price to track net asset value. While the average deviation between the daily closing price and the daily NAV of ETFs that track domestic indexes is generally less than 2%, the deviations may be more significant for ETFs that track certain foreign indexes. The Wall Street Journal reported in November 2008, during a period of market turbulence, that some lightly traded ETFs not infrequently had deviations of 5% or more, exceeding 10% in a handful of cases, although even for these niche ETFs, the average deviation was only a little more than 1%. The trades with the greatest deviations tended to be made immediately after the market opened. ETFs offer little or no advantage over index funds for tax-deferred, long-term, retirement investors, because such investors typically conduct little if any trading and tax issues are of little concern for them. In a survey of investment professionals, the most frequently-cited disadvantage of ETFs was the unknown, untested indexes used by many ETFs, followed by the overwhelming number of choices. Some critics claim that ETFs can be, and have been, used to manipulate market prices, including having been used for short selling that has been asserted by some observers (including Jim Cramer of theStreet.com) to have contributed to the market collapse of 2008 CONCLUSION ETFs have a lot to offer. They're flexible and low-cost, and their underlying portfolios are protected from the impact of investor trading, making them more tax-efficient than most mutual funds. There are also ETFs that address specific subsectors that regular mutual funds do not. Nevertheless, look carefully before you leap. ETFs cost advantage isn't always as large as it might seem, and trading costs can quickly add up. Particularly if you're in the market for a fund that tracks a broad index such as the NSE Nifty, or if you wish to invest regular sums of money, it's tough to make a case yet for choosing an ETF over one of the existing low-cost mutual-fund options.
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