An exchange-traded fund, or ETF, is a type of Investment Company whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index. For example, one type of ETF, known as Spiders or SPDRs, invests in all of the stocks contained in the S&P 500 Composite Stock Price Index.
Exchange traded fund has qualities of an Index fund viz. Constructed to track the Index, Open ended Mutual fund, Low Expense ratio, Low Turnover and also those of a stock viz. Trading flexibility intraday on the exchange, Real time price. Units of exchange traded fund can be bought and sold with cash through trading members on respective stock exchange. The First ETF - SPDR (S&P 500 depository receipts) was
launched in the year 1993.
The role of stock exchange in case of launch of any ETF is Index Licensor. Some of the ETF's traded on BSE SENSEX are SPICE, Kotak MF, etc. Value of one unit of exchange traded fund SPICE (ETF on SENSEX) is typically 1/100th of SENSEX. SPICE was sponsored by Pru ICICIAMC Ltd. Value of one unit of exchange traded fund launched by Kotak MF (ETF on SENSEX) is typically 1/100th of SENSEX.
