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An ETF is a collection of securities that are traded on the stock exchange. These securities could be stocks, commodities, bonds or currencies. As they are listed on an exchange, ETFs trade like stocks and experience price changes as and when they are bought and sold.

Assume a fund that has all the Sensex 30 stocks. Let’s call it the Sensex Fund. This fund, with its basket of 30 stocks, gives you the advantage of risk diversification. Trading in an ETF is just like buying or selling the Sensex Fund or any other Index Fund listed on the stock exchange. Since the Sensex Fund trades like a stock, its price fluctuates during market hours. This is unlike a mutual fund, whose NAV, or price, is calculated at the end of the day.


Returns comparison between ETFs and FD & savings account

You can earn from your idle money with ETFs. They have the potential to beat long term returns from Savings Accounts and Fixed Deposits. Here’s how they compare:

Annual returns:

Savings account 3-6%

FDs: 6-7.5%

Nifty 50: 15.73%*


In 3 years, investment of Rs. 100,000 would become^^:

Savings account: Rs. 109,273 (Assuming 3%)

FD: Rs. 119,102 (Assuming 6%)

Nifty 50: Rs.1,55,002


Risk:

Savings account: Low

FD: Low

Nifty 50: Moderate


Investment cost:

Savings account: No management costs

FD: No management costs

Nifty 50: Moderate: Expense ratio of < 0.20%^ + Brokerage of < 0.40%**


Early withdrawal:

Savings account: Allowed without any penalty

FD: Penalty on premature withdrawal

Nifty 50: Allowed without exit load^. Only cost is Brokerage


source: https://www.amfiindia.com

^ For ETF based in index such as NIFTY

^^ Assuming return of 3% (Savings A/C), 6% (FD), 15.73% (Nifty 50). Taxation not considered.

** Basis Kotak Securities current delivery brokerage rate

* Nifty 3 year average return as of 2nd December 2019. Past performance is not indicative of future results.

Top performing ETFs

Let the numbers speak for themselves! Here are the top 3 NIFTY-benchmarked ETFs *** with regular 3 year returns:

  • Edelweiss Exchange Traded Fund-Nifty 50 – 16.15%
  • UTI Nifty Exchange Traded Fund – 15.71%
  • SBI ETF Nifty 50 – 15.68%

The 3-year benchmark return for the ETFs above is 15.73%

source: https://www.amfiindia.com

** Past performance is not indicative of future results.

Securities mentioned are exemplary and not recommendatory

How Liquid ETFs perform in comparison to Savings Account and FD?

Risk

Savings account: Lowest

FD: Lowest

Liquid ETF: Low


Pre-tax rate of return

Savings account: 3%-6%

FD: 6%-7.5%

Liquid ETF: 5.15%#


Tax payment

Savings account: To be paid by the investor

FD: To be paid by the investor

Liquid ETF: Not taxable in the hands of the investor


Liquid ETFs with their 1-year return

DSP Liquid ETF - 5.62%*#

ICICI Prudential Liquid ETF - 5.35%*#

Nippon India ETF Liquid BeES - 4.46%*#


Nifty 50: Allowed without exit load^. Only cost is Brokerage

^ For ETF based on index such as NIFTY

^^ Assuming return of 3% (Savings A/C), 6% (FD), 14.16% (Nifty 50). Taxation not considered.

** Basis Kotak Securities current delivery brokerage rate

* Nifty 3 year average return as of 26th November 2019 (3 Year CAGR). Past performance is not indicative of future results.

#1 yr return as on 27th Nov, 2019 – average of ICICI Pru Liquid ETF, DSP Liquid ETF and Nippon India Liquid BeES

***Past performance is not indicative of future results. Securities mentioned are exemplary and not recommendatory

*#Scheme related information as on 27th Nov, 2019; Source: https://www.valueresearchonline.com/

What are the benefits?

  • ETFs based on broad market indices provide diversification to your investments.

  • Buy and sell at real time price.

  • Ideal for retail investors as minimum lot size to trade is one unit on secondary market.

  • Low expense ratios as one would not be paying entry and exit loads and management fees.

  • Trading of ETFs on exchange provides flexibility and liquidity to your investments.

  • Exchange-Traded Funds tend to replicate the performance of the underlying with least error ratio.

  • ETF holdings are readily disclosed, making your investment highly transparent.

  • Quick and convenient dealing through demat account .

  • Offers the risk diversification of a mutual fund.

What does Kotak Securities offer?

At Kotak Securities, we offer you access to trade in gold , index, sector-specific as well as international Exchange-Traded Funds. Here’s how you can invest:

 

Have more questions? Click here to find answers.


These are not Exchange traded product and the Member is just acting as distributor. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism.

Why Exchange-traded funds?
  • Risk diversification like mutual funds
  • Easy liquidity
  • Access to international stock indices
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