Innovative Financial Products & Services
[Link] George Associate Professor in Commerce
What is financial Service industry? It includes all kinds of agencies which provide short-term and long-term funds to individuals and corporate customers.
Capital Market Intermediaries Money Market Intermediaries
Financial Service
Fund Based
Fee Based
Fund (asset) based activities
Equipment Leasing/ Financing Hire-Purchase and Consumer Credit Bill Discounting Venture Capital Housing Finance Underwriting of shares Participating in money market activities Insurance Services Factoring Services
Fee base activities (advisory services) Corporate Counselling Issue Management Loan Syndication Stock Broking Mutual fund Portfolio Management Mergers and Acquisition Capital Restructuring Credit Rating
Causes of Financial Innovation
Economic liberalization Improved communication and technology Low profitability Keen competition Increased investor awareness Changing Customer needs
Exchange Traded Funds
What are ETFs?
ETFs are open ended passively managed mutual funds that are traded on stock exchange with an objective of providing returns as that of a particular market index.
Exchange Traded Funds are essentially Index Funds that are listed and traded on stock exchanges like stocks. ETF is of recent origin. They enable investors to gain broad exposure to entire stock markets Relatively easier, on a real-time basis and at a lower cost than many other forms of investing.
An ETF is a basket of stocks that reflects the composition of an Index, like S&P CNX Nifty or BSE Sensex. The ETFs trading value is based on the net asset value of the underlying stocks that it represents. Think of it as a Mutual Fund that you can buy and sell in real-time at a price that changes throughout the day.
ETFs combine the Benefits of
Mutual funds Diversification Regulated Open ended Stocks
Bought & Sold During the Day Transparent Liquid
Based on the broader market ETFs are of following types
ETF
Equity
Bonds
Commodities
What are benefits of ETFs?
Can easily be bought / sold like any other stock on the exchange through terminals across the country. Can be bought / sold anytime during market hours at a price close to the actual NAV of the Scheme. No separate form filling. Just a phone call to your broker or a click on the net.
. Ability to put limit orders. Minimum investment is one unit. Enjoy flexibility of a stock and diversification of index fund. Expense Ratio is lower. Provides arbitrage between Futures and Cash Market.
Benefits contd
5 year Gold price in INR / oz
Price Movement of Gold from Aug. 2009- Nov. 2010
Symbol
Gold ETF in India AMC
GOLDBEES
GOLD SHARE KOTAK GOLD QGOLDHALF RELGOLD RELIGAREGO SBIGETS HDFCMFGETF IPGETF AXISGOLD
BENCHMARK
UTI KOTAK QUANTUM RELIANCE RELIGARE SBI HDFC ICICI AXIS
Scrip Based Trading
Share holder (Seller)
Share certificate & TD
Broker of Seller
Registrar & Transfer agent
Buyer
Broker of buyer
Buyer become the Share holder
How to deal in stock market ?
Go to the brokers office Open a trading account Get the ID number Deposit money Give order for buying shares Check your account Sell when prices boosts up
Advantages of ETFs
Easier to track High quality and well diversified portfolio. Convenience of trading & Real Time NAV Available in lower denomination
Who are the Users of ETF:
Due to unique structure of ETFs, all types of investors whether retail or institutional, long term or short term, can use it to their advantage.
What are the advantages of ETFs over normal open-ended mutual fund?
Buying / Selling ETFs is as simple as buying / selling any other stock on the exchange. ETFs allow investors to take benefit of intraday movements in the market, which is not possible with open-ended Funds.
With ETFs one pays lower management fees. As ETFs are listed on the Exchange, distribution and other operational expenses are significantly lower, making it cost effective. These savings in cost are passed on to the investor. ETFs have lower tracking error due to in-kind creation and redemption. Due to its unique structure, the long-term investors are insulated from short term trading in the fund.
What are the differences between ETFs and close-ended mutual funds?
Though Close-Ended Mutual Funds are listed on the exchange they have a limited number of shares and trade at substantial premiums or more often at discounts to the actual NAV of the scheme. Also, they lack the transparency, as one does not know the constitution and value of the underlying portfolio on a daily basis. In ETFs, the number of units issued are not limited and can be created / redeemed throughout the day. ETFs rely on market makers and arbitrageurs to maintain liquidity so as to keep the price in line with the actual NAV.
Comparison of ETFs v/s Open Ended Funds v/s Close Ended Funds:
Open Ended Fund
Fund Size
NAV
Closed Ended Fund
Fixed
Daily
ETF
Flexible
Real-Time Stock Market / Fund Itself
Flexible
Daily
Liquidity Provider Availability
Fund Itself Fund Itself
Stock Market
Through Exchange where listed
Through Exchange where listed / Fund itself.
Portfolio Disclosure
Disclosed monthly
Disclosed monthly
Daily/Real-time
Intra-Day Trading
Not possible
Expensive
Possible at low cost
ETF managed by Benchmark AMC
AMC Offering The Product
Scheme Name
Benchmark Index/Asset Class
Nifty BeES
Benchmark AMC
S&P CNX Nifty Index
Junior BeES Liquid BeES Bank BeES
Benchmark AMC Benchmark AMC Benchmark AMC
CNX Nifty Junior Index Crisil Liquid Fund Index CNX Bank Index
Gold BeES
PSU Bank BeES
Benchmark AMC
Benchmark AMC
Price Of Gold
CNX PSU Bank Index
ETF Trading in Indian Market in November 2010
ETF Based on asset
GOLD Money Market Equity Market
International Equity Market Total
Total T/o in lakhs 40543.62 24439.98 21173.46 69.40 86226.46
47.02% 28.34% 24.56%
0.08% 100%
Web sites [Link] [Link] [Link] NSE's Certification in Financial Markets (NCFM).
INVESTMENT WISDOM
WARREN
RULE No.1-
BUFFET
NEVER LOSE MONEY NEVER FORGET RULE No.1
RULE No.2-
THANK YOU
