Learn about the ETF market & ETFs

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Exchange-Traded-Funds (ETFs) have become an accepted investment option due to their low fees and the tax benefits they can offer. ETFs track an index and give investors opportunities to invest in securities and other assets.

ETFs allow you to invest in fixed income, equity, commodity, currency and mixed assets. The main aim of the ETFs is to replicate the returns of an index and are managed passively. There are portfolio managers who are allowed to manage a small subset of the funds actively. Investors can decide the holding and the weights of these funds.

When you buy ETFs, you buy shares in a portfolio that is designed to track the returns of its index. ETFs cannot be sold directly to investors. Shares of ETFs are issued in a large block called creation units and usually have 50,000 shares per unit.

The large financial institution called 'authorised participants' buys these creation units via cash transactions called 'in-kind'. The 'in-kind' transactions offer tax benefits related to their capital gains tax.

Another reason why ETFs are popular is that they can be traded conveniently. They can be traded intraday without any upfront load. They offer a wider option in investing and provide small investors an efficient way of investing where they can use factor-based strategies and alternative investment strategies.

Growth of ETFs

Many factors have led to the growth of ETF assets. ETFs are popular because of their unique characteristics, the exposure they provide to markets that were inaccessible before and an increase in the number of models and strategies that can be used with them.

The unique characteristic of ETFs is intra-day fund liquidity, full transparency, ability to be created and redeemed by certain investors in large units through 'in-kind' transactions versus cash.

ETFs asset class

ETFs can be split apart by the asset class, economic development and region. Some ETFs track the indexes that are equity-based and make up the majority of the ETFs assets under management. Fixed income ETFs make up some parts of the market.

EFTs that track the indices have the highest notional value and include fixed income, equities and alternatives.

ETFs that track international equities have the highest number of funds.

Investing in ETFs has now become easy as many brokers offer online share trading apps. These apps can be used for trading online at the click of a button. You just have to open an online trading account to start investing.