Exchange Traded Funds

Exchange Traded Funds
“Exchange Traded Funds

– A New Face of
Investment in India”
By
DEEPAK SINGH
Financial Research Analyst (Markit)
&
Final Semester PGDM Student
INSTITUTE OF MARKETING AND MANAGEMENT

Marketing Tower, B-11, Qutub Institutional Area,
New Delhi-110016
1
Exchange Traded Funds – ‘A new face of investment in India’ is my attempt to

gather maximum possible information at one place. This report is based on
secondary research from websites and newspapers. I have tried to cover basics of
Exchange Traded Funds (ETFs) as well as brief introduction of ETFs in Indian
Financial Market. Exchange Traded Funds are well established in international
market, but in India it is in its initial stage.
This report is based on the performance of Exchange Traded Funds latest by May
& August 2008.
This is a wide topic and it is not easy to touch all the aspects of Exchange Traded
Funds in detail. If any one has any additional and important information
regarding ETFs please send it at my email ID, I would appreciate your precious
help.
Thank you,
Deepak Singh
deepaksjyala@hotmail.com
deepaksjyala@gmail.com
2
S.No. TABLE OF CONTENT Page No.
1) Synopsis 5
2) Specific Objectives 7
3) Research Methodology 8
4) Introduction of Exchange Traded Funds 10
5) History of Exchange Traded Funds 11
6) Types of ETFs Available in the market 12
7) ETFs better than Mutual Funds 14
8) Comparison of ETFs v/s Mutual Funds 16
9) Advantages of ETFs 17
10) How an ETF Comes to Market 21
11) Understanding the Creation/Redemption process 24
12) Risks associated with ETFs 30
13) Families/Issuers of ETFs 34
14) ETF performance globally 35
a) Performance by Market Cap 42
b) Performance by Style 43
c) Performance by Sector 44
15) ETF market 5 years down the line 48
16) Exchange Traded Funds in India 49
a) Nifty BeEs 52
b) Liquid BeEs 56
c) Junior Nifty BeEs 61
d) UTI Sunder 64
e) Bank BeEs 65
f) PSU Bank BeEs 67
g) Kotak PSU Bank 69
h) Kotak Sensex ETF 70
i) Quantum Index fund (QNIFTY) 71
j) RELBANK 72
3
17) Gold Exchange Traded Funds in India 73
a) Gold BeES 82
b) UTI Goldshare 83
c) KotakGold 85
d) RELGOLD 86
e) Quantum Gold ETF 87
18) Road blocks in Indian Market 88
19) Performance of Indian ETFs 93
20) Suggestions from institutional investors 98
21) 10 best buy ETFs 99
22) Limitations of Study 101
23) Appendices 102
24) Refrences 111
4
Synopsis
Investment is the most common word of present era with a large number of
investment options available in the financial market. Equity (shares), government
bonds, corporate bonds, bank fixed deposits etc. are the most widely known
investment options. Exchange Traded Funds (ETFs) are new among these
investment options especially in Indian financial world. Globally, ETFs have opened
a whole new panorama of investment opportunities to retail as well as institutional
money managers. First Exchange Traded Fund was started in 1993. They enable
investors to gain broad exposure to entire stock markets in different countries and
specific sectors with relative ease, 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 etc. Exchange Traded Funds are essentially index funds that are
listed and traded on exchanges like stocks. The ETF's trading value is based on the
net asset value of the underlying stocks that it represents. ETFs are a recent
innovation in the world of investing. ETFs are a special kind of security that grants
you ownership over a collection of individual stock certificates. ETFs provide all the
facilities that a share (Equity) has like intraday trading, purchase on margin, sold
short etc.
Over the past five years, the ETF universe has exploded. The number of ETFs in the
U.S. has grown from 130 to 646; the number of domestic issuers has increased from
five to 23; assets under management have increased from $101.6 billion to $620.5
billion. [These numbers compare the end of 2002 with the end of 2007.]
Exchange Traded Funds in India listings include gold, silver and currencies. Assets of
India’s exchange-traded funds (ETFs) increased by more than six times in the past
one and a half years, aided by the India growth story. Their assets under
management increased to Rs.63.77billion as on September 30, 2007, from Rs.8.69
billion as on March 31, 2006. Most ETFs in India are index funds. Notable among
them are Nifty Benchmark Exchange Traded Scheme (BeES), Bank BeES, and Liquid
BeES. Recently, several fund houses also launched gold funds in the form of ETFs.
5
Till 2006-07 we had only 6 ETFs in Indian market based on Nifty and banks now we
have 15 ETFs. 2007-08 was the year of gold ETFs in India most of the gold ETFs
came to the Indian market during third and fourth quarter of the financial year
2007-08. Unfortunately during this year US and other big economies were badly
suffered because of subprime crisis and after that depreciation of US$ then rise in
the oil prices, high inflation which has its impact on India economy also and
ultimately affected all the ETFs available in the market. Despite sluggish
performance of equity market gold ETFs were able to perform better than other
investment instruments.
Even in the downward movement and strongly negative sentiments of the financial
market ETFs have performed relatively better than stocks market. When analyzed
category wise, the maximum returns were delivered by the Gold ETFs, a huge 25%
return per annum.
Performance of different investment options: (M O N D A Y , AUGUST 11, 2008)
Annual Return
Gold ETF 25.00%
S&P CNX Nifty 12.63%
Sensex 12.46
Equity FMCG 11.72
Equity banking 11.49%
BSE Small Cap 10.73%
Sectoral fund categories (Technology and Auto) have delivered negative returns to
the tune of 15.38% and 14.88% respectively.
Indian market has huge potential and will be open to welcome more ETFs as soon as
this negative phase recovers. Only road blocks that I see in Indian market is high
volatility, no track record and complex economic rules and regulations of regulatory
authorities SEBI and RBI. One more ETF that will track the performance of the silver
is in the pipeline and waiting for the approval form SEBI.
6
SPECIFIC OBJECTIVES
1. TO STUDY THE EXCHANGE TRADED FUNDS AND THEIR CREATION

PROCEDURE FOLLOWED BY CONCERNED INSTITUTIONS
2. TO EVALUATE DIFFERENT FAMILIES OF ETFs ON THE BASIS OF

THEIR PERFORMANCE
3. TO EXPLORE THE POSSIBILITIES OF ETFs IN INDIAN FINANCIAL

MARKET AND STUDYING THE ROAD BLOCKS WHICH MAY EMERGE
DURING ITS APPLICABILITY
7
RESEARCH METHODOLOGY
This thesis project report is wholly based on intensive secondary research and
personal discussions with financial research analysts. Objectives of this report
were successfully executed with the help of secondary data available on
magazines, newspapers and websites.
The data collection and data analysis is done with the help of following methods
1. Data collection:
Mostly data was collected through secondary sources such as Journals, Corporate
reports, News papers and related websites (Bloomberg, Reuters, and Stocks
Exchanges etc).
2. Data analysis:
Data classification and analysis is being done with the help of various statistical
tools such as graphs, tables and charts such as pie charts, bar charts, area charts
etc.
8
9
EXCHANGE TRADED FUNDS

Exchange Traded Funds are essentially index funds that are listed and traded on
exchanges like stocks. Until the development of ETFs, this was not possible before.
Globally, ETFs have opened a whole new panorama of investment opportunities to
retail as well as institutional money managers. They enable investors to gain broad
exposure to entire stock markets in different countries and specific sectors with
relative ease, 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 ETF's 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, which changes throughout the day.
ETFs are a recent innovation in the world of investing. ETFs are a special kind of
security that grants you ownership over a collection of individual stock certificates.
ETFs are approved by the SEC and are then available to the public as investing
vehicles.
10
HISTORY OF EXCHANGE TRADED FUNDS:
The Origination of the Investment Company Concept

1893: First closed-end fund is started in Belgium.
1924: First open-end mutual funds are established in Boston.
1961: First tax-free unit investment trust is offered.
1976: First retail index fund is introduced.
1993: First exchange-traded fund shares are issued.
Sources: Investment Company Institute, Closed-End Fund Association
ETF Assets
(Billions of dollars)
World wide popularity of ETFs

ETFs, baskets of securities that are designed to track indices and trade like stocks,
have been the hottest investment vehicles of recent years and are especially popular
among affluent investors. Assets held within ETFs have increased 30 per cent to
$559bn in the past year, according to the Investment Company Institute, the
industry body.
11
Types of ETFs Available for Purchase
On broad basis ETFs are of Two Types:
1. Closed-End ETFs
2. Index ETFs
Closed-End ETFs: Like a traditional mutual fund, a Closed-End ETF is an

investment company that pools the assets of its investors and uses professional
managers to invest the money to meet clearly identified objectives, such as current
income or capital appreciation. However, unlike a mutual fund, a Closed-End ETF
issues a fixed number of shares through an initial public offering, and lists those
shares on a national stock exchange such as the New York Stock Exchange (NYSE) or
the American Stock Exchange (AMEX). Investors who wish to buy or sell fund shares
do not purchase or redeem directly from the fund - rather, they buy or sell fund
shares on the stock exchange in a process identical to the purchase or sale of any
other listed stock.
Index ETFs: Like a traditional mutual fund, an index ETF is a investment structure
that pools the assets of its investors and uses professional managers to invest the
money to meet clearly identified objectives, such as current income or capital
appreciation. Unlike a mutual fund, an index ETF is created when an institutional
investor deposits securities into the fund in return for creation units. In return for
the deposit, the institutional investor receives a fixed amount of shares, some or all
of which may be traded and priced throughout the day on a stock exchange such as
the American Stock Exchange (AMEX). Retail investors who wish to buy or sell fund
shares do not purchase or redeem directly from the fund - rather, they buy or sell
fund shares on the stock exchange in a process identical to the purchase or sale of
any other listed stock. All the strategies associated with stocks, such as market
orders, limit orders, stop orders, short sales, and margin buying can be used in the
purchase and sale of index ETFs.
12
Kinds of Index Exchange Traded Funds:

There are ETFs that track almost every U.S. stock market index, as well as ETFs that
track individual U.S. stock market sectors, international indices, and bond indices.
The main categories of ETFs are:
 Broad-Based Equity Index Shares. These ETFs track indices like the S&P
500 Index, the NASDAQ Composite Index, as well as large-, mid-, and small-
cap indices.
 Sector/Industry Equity Index Shares. These ETFs track indices that
focus on specific sectors such as energy, financial services, healthcare, real
estate, technology, industrial, transportation, and consumer goods, to name a
few.
 Global/International Equity Index Shares. These ETFs track indices
focusing on a specific country or region.
 Bond Index Shares. These ETFs track U.S. Treasury bond and corporate
bond indices.
Assets of Exchange-Traded Funds by Type

(billions of dollars)
Source: Investment Company Institute, December 2006
13
WHY ARE ETFs BETTER THAN MUTUAL FUNDS
 A mutual fund is simply a pool of money that the fund manager then invests
in stocks, bonds, or other securities. The fund manager makes the decisions,
based upon the goals of the fund (ie, what kind of sectors it can invest it, how
much it can hold in cash, how much it can invest internationally, etc.). The
fund managers buy and sell different positions throughout the year, while
their actual holdings are only published quarterly (otherwise anyone could
"copy" the investment choices of some hot manager). This means that at any
given time, you (as an investor) really have no idea what makes up the
portfolio of the fund - what companies it is investing in, and how much it
holds of each.
 ETFs are not like this. They specifically state what industry they are investing
in and what securities they hold and in what quantity - this is all publicly
available at all times, so there is no mystery involved.
 Mutual funds also cannot be traded during the day, since they are only valued
at the end of the day after all the underlying securities they hold have been
valued at that days closing price. So you can only trade (buy or sell) a mutual
fund at the end of a market close - not during the day. ETFs are not like this
either. They are constantly valued based on their underlying holdings, and
can be traded any time of the day when the market is open (hence the name,
exchange TRADED funds).
 Another major difference is in fees. Mutual funds tend to charge annual fees
between 1-2%, which goes to pay the managers running the fund and making
the investment decisions. ETF fees are a fraction of that, sometimes as low as
.1%. Over the course of a few years, this can add 5% or more to your returns
that otherwise would have been burned up in mutual fund fees. ETFs can also
be margined and options can be bought and sold, just like regular securities.
14
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 intra-day 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 the in-kind for creation and
redemption.
 Due to its unique structure, the long-term investors are insulated from short
term trading in the fund.
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.
The numbers of shares 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.
15
COMPARISON OF ETFs V/S OPEN ENDED FUNDS V/S CLOSE

ENDED FUNDS:
Open Ended Closed Ended Exchange Traded

Fund Fund Fund
Fund Size Flexible Fixed Flexible
NAV Daily Daily Real Time
Liquidity Fund Itself Stock Market Stock Market / Fund

Provider Itself
Provider Fund Itself
Availability Fund itself Through Exchange Through Exchange

where listed where listed / Fund
itself.
Portfolio Disclosed Disclosed monthly Daily/Real-time
Disclosure monthly
Intra-Day Not possible Expensive Possible at low cost

Trading
16
THE ADVANTAGES OF EXCHANGE TRADED FUNDS:

a) Tax efficiency
b) Lower costs - (ordinary brokerage commissions apply)
c) Transparency
d) Buying and selling flexibility
e) All day tracking and trading
f) Diversification
g) Dividend opportunities
h) Wide array of investment strategies
i) Core investment
j) Portfolio diversification
k) Hedging
l) Cash management
m) Rebalancing
n) Tax loss strategy
a) Tax efficiency
ETFs, like index funds in general, tend to offer greater tax benefits because they
generate fewer capital gains due to low turnover of the securities that comprise the
portfolio. Generally, an ETF only sells securities to reflect changes in its underlying
index. Exchange trading of ETFs further enhances their tax efficiency. Investors who
want to liquidate shares in an ETF simply sell them to other investors through
exchange trading. Because of this unique structure, ETFs are not required to sell
securities to meet investor cash redemptions, potentially generating capital gains tax
liability for remaining investors. Keep in mind that the sale of an ETF will generate
capital gains/losses for the investor liquidating shares.
b) Lower costs
Expenses can have a significant impact on returns for investors. ETFs, in general,
have significantly lower annual expense ratios than other investment products. ETFs
17
are less likely to experience high management fees because they are index-based, not
"actively" managed. And, since they trade on an exchange, ETFs are insulated from
the costs of having to buy and sell securities to accommodate shareholder purchases
and redemptions. Of course, an investor selling ETF shares may realize capital gains
or losses, as with common stocks. Purchases or sales of exchange traded funds are
subject to brokerage commissions.
c) Transparency
ETFs generally are designed to correspond to the performance of their underlying

index or commodity.
d) Buying and selling flexibility
Because they are exchange traded, ETFs can be:

 Bought and sold at intraday market prices
 Purchased on margin
 Sold short
 Traded using stop orders and limit orders, which allow investors to specify
the price points at which they are willing to trade
e) All day tracking and trading
ETFs are priced and traded throughout the day, and are not restricted to once-a-day
trading at the end of the day. And because the pricing of ETFs is continuous during
trading hours, investors will always be able to obtain up-to-the-minute share prices
from their broker or financial adviser.
f) Diversification
Because each ETF is comprised of a basket of securities, it inherently provides

diversification across an entire index. Additionally, the expanding universe of ETFs
18
available at the American Stock Exchange offers exposure to a diverse variety of
markets, including:
 Broad-based equity indexes (such as total market, large-cap growth, and
small-cap value)
 Broad-based international and country-specific equity indexes (such as
Europe, EAFE, and Japan)
 Industry sector-specific equity indexes (such as healthcare, energy, and real
estate)
 U.S. bond indexes (such as long-term Treasury bonds and corporate bonds)
 Commodities (such as gold, silver, and oil)
g) Dividend opportunities
Dividends paid by companies and interest paid on bonds held in an ETF are
distributed to ETF holders, less expenses, on a pro rata basis. Of course, not all
companies will pay dividends. Based on past performance, few, if any, distributions
can be expected from certain ETFs. There may also be opportunities for reinvestment
of distributions.
h) Wide array of investment strategies:
Investors can capitalize on the convenience and flexibility of ETFs to pursue a wide
variety of investment strategies.
i) Core investment—Investors can use ETFs as a core investment for their

portfolio. The purchase of shares in a single ETF can provide broad market exposure
for long-term holding that is easy to establish, easy to track, inexpensive, and tax
efficient.
19
j) Portfolio diversification—ETFs cover virtually every segment of the equity
market and several segments of the U.S. bond market and commodities, providing an
easy and convenient way to adjust the investment mix of a core portfolio.
k) Hedging—Exchange traded funds can be purchased on margin and sold short,

which has opened up risk management strategies for individual investors that were
once available only to large institutions. For example, ETFs can be sold short to
hedge a core stock portfolio or interest rate fluctuations. This allows investors to
keep their portfolio intact while protecting them from market losses. In a declining
stock market or rising interest rate environment, profits from a short position can
offset some of the losses in a portfolio. (Investors are required to make arrangements
to borrow securities before selling short.) Listed options, available on some ETFs,
also offer opportunities for additional hedging or to increase income. Investors
should contact their broker regarding initial and maintenance margin requirements.
l) Cash management—ETFs have often been used to "equitize" cash, providing a

way for investors to put cash to work in the market or maintain allocation targets
while determining where to invest for the longer term.
m) Rebalancing—Investors can adjust ETF positions at any time throughout the

trading day, without redemption fees or short-term restrictions. Again, usual
brokerage commissions will apply.
n) Tax loss strategy—An investor can sell a security that is underperforming and
claim a tax loss but retain exposure to its sector by investing in an ETF.
20
HOW AN ETF COMES TO MARKET

Retail investors who purchase an interest in an ETF do not directly own a pro-rata
interest in the ETF's portfolio. Rather, the investor owns a share in a "creation unit,"
which is issued by the ETF sponsor to a creation unit holder in return for a basket of
securities. In other words, there is a person-typically an institutional investor-
interposed between the retail ETF owner and the ETF sponsor.
How Do ETFs Generate Returns for Investors?
The price of an ETF share depends on the forces of supply and demand in the market
and on the performance of the underlying index. Of course, the performance of the
index is determined by the performance of each component stock.
21
In some ways, holding a share in an ETF is like holding a share of any company's
stock. If an investor buys a share of XYZ Company's stock for $10 on Monday and
sells when the share price rises to $20 on Wednesday, he or she has made a $10
profit. But if that investor sells on Friday, when the price of the stock has fallen to $8,
he or she will experience a $2 loss. The same holds true for ETFs.
Pricing, however, differs between mutual funds and ETFs. For a mutual fund, the
price at which investors buy and sell shares is equal to the fund's net asset value
(NAV), less any commissions. The NAVs of both mutual funds and ETFs are
calculated daily at the close of the markets. While investors can buy and sell mutual
fund shares are any time throughout the day, all investors will receive the same
transaction price (the NAV). In contrast, the price of an ETF share is continuously
determined on a stock exchange. Consequently, the price at which investors buy and
sell ETF shares may not necessarily equal the NAV of the portfolio of securities in the
ETF. In addition, two investors selling the same ETF shares at different times on the
same day may receive different prices for their shares, both of which may differ from
the ETF's new asset value.
The price of an ETF share on a stock exchange is influenced by the forces of supply
and demand. For example, when investor’s demand for an ETF increases, the ETF's
share price will rise, perhaps exceeding the ETF's net asset value. ETFs are
structured, however, so that large differences between their share prices and their
NAVs are unlikely to persist. Third parties calculate and disseminate every 15
seconds a measure often called the Inter-day Indicative Value (IIV), which is a real-
time estimate of a fund's NAV. When an ETF's share price is substantially above this
indicative value, institutional investors may find it profitable to deliver the
appropriate basket of securities to the ETF in exchange for ETF shares. Retail
investors may find it profitable to take a short position in the ETF's shares. When an
ETF's share price is substantially below its indicative value, institutional investors
may find it profitable to return ETF shares to the fund in exchange for the ETF's
basket of securities. Retail investors may find it profitable to take a long position in
the ETF's shares. These actions by investors help keep the market-determined price
of an ETF's shares close to the NAV of its underlying portfolio.
22
ETFs have been offered to investors since 1993. As indicated by the graph below, an
investor who bought shares of an ETF that tracked the S&P 500 Index in 1993 would
have seen the value of their ETF shares rise or fall to varying degrees over the past 11
years.
Historical S&P 500 Index Performance

(year end)
23
UNDERSTANDING THE CREATION/REDEMPTION PROCESS
Unlike mutual funds that invest by purchasing securities with cash on the open
market, ETF shares are created (and redeemed) via a unique in-kind transaction
known as the creation/redemption process.
It Starts with the Authorized Participant
An ETF begins with the fund sponsor’s investment idea. But the official creation
process actually begins with an Authorized Participant (AP). Sometimes called
specialists or market makers, APs are broker/dealers who essentially create, or
“make,” the market for an ETF. The AP initiates the creation of ETFs based on the
need to fill an order or to generate inventory. The AP may also initiate the process
when there is an opportunity for arbitrage. It’s important to note that APs are the
only institutions that may create or redeem shares of an ETF.
Arbitrage
Arbitrage is an investing method in which an investor simultaneously buys and sells
the same or similar security to take advantage of a price difference. In the case of
ETFs, it is the difference between the current ETF price and ETF net asset value,
which indicates the actual value of the underlying securities.
24
Creation Unit
A set of shares or securities that makes up one unit of the fund held by the trust that
underlies an exchange traded fund (ETF). One creation unit is the denomination of
underlying assets that can be redeemed for a specified number of ETF shares.
Net Asset Value (NAV)

NAV is the dollar value of a single ETF share, based on the value of the underlying
assets of the fund, minus its liabilities, divided by the number of shares outstanding.
NAV is calculated at the end of each business day.
The Creation Unit

To create an ETF, the AP purchases or borrows the underlying stocks. The stocks are
then bundled together, creating a basket of stocks, or Creation Unit. The Creation
25
Unit typically mirrors or approximates a specific index—like the S&P Equal Weight
Index—and is calculated at Net Asset Value (NAV). Set by the issuer, the Creation
Unit is usually large enough to purchase 50,000 to 100,000 shares of the ETF. The
issuer determines the NAV and how many shares will make up the ETF.
Now In Reverse: The Redemption Process
The redemption process is simply the reverse of the creation process. The AP
purchases a large number of ETF shares on the open market, then redeems or
exchanges the shares for the underlying basket of securities and sells them to the
market. Once again, there are no trading costs for the portfolio and all of the
transaction costs are covered by the AP. This is still an in-kind transaction because
there is no cash exchanged.
As alluded to earlier, the ETF redemption process may provide investors with
enhanced tax efficiency. When a share of a mutual fund is redeemed, the fund is
often required to sell some of its portfolio holdings to raise the necessary cash to
return to departing shareholders. And when a fund sells its holdings, it incurs capital
gains, which are then, are distributed to the remaining shareholders. But since an
ETF’s shares are exchanged in-kind for equal value, there is no taxable gain on the
transaction.
Custodian Bank
Custodian bank is a banking institution that holds in custody and safekeeping the
securities and other assets of an investment company.
26
Information regarding buying and selling of ETF
 ETFs do not sell individual shares directly to investors and only issue their
shares in large blocks (blocks of 50,000 shares, for example) that are known
as "Creation Units."
 Investors generally do not purchase Creation Units with cash. Instead, they
buy Creation Units with a basket of securities that generally mirrors the ETF’s
portfolio. Those who purchase Creation Units are frequently institutions.
 After purchasing a Creation Unit, an investor often splits it up and sells the
individual shares on a secondary market. This permits other investors to
purchase individual shares (instead of Creation Units).
 Investors who want to sell their ETF shares have two options:
(1) they can sell individual shares to other investors on the secondary market,
or
(2) they can sell the Creation Units back to the ETF. In addition, ETFs
generally redeem Creation Units by giving investors the securities that
comprise the portfolio instead of cash.
So, for example, an ETF invested in the stocks contained in the Dow Jones Industrial
Average (DJIA) would give a redeeming shareholder the actual securities that
constitute the DJIA instead of cash. Because of the limited redeemability of ETF
shares, ETFs are not considered to be—and may not call themselves—mutual funds.
 An ETF, like any other type of investment company, will have a prospectus.
All investors that purchase Creation Units receive a prospectus. Some ETFs
also deliver a prospectus to secondary market purchasers.
 ETFs that do not deliver a prospectus are required to give investors a
document known as a Product Description, which summarizes key
27
information about the ETF and explains how to obtain a prospectus. All ETFs
will deliver a prospectus upon request.
What are the USES OF ETFs?
Asset Allocation: Studies have shown that Asset Allocation is what drives long-
term accumulation of wealth as can be seen from the following chart below:
Until recently however, managing asset allocation could be difficult for individual
investors given the costs and assets required to achieve proper levels of
diversification. ETFs provide investors with exposure to broad segments of the equity
markets. They cover a range of style and size spectrums, enabling investors to build
customized investment portfolios consistent with their financial needs, risk
tolerance, and investment horizon. Both institutional and individual investors use
ETFs to conveniently, efficiently, and cost effectively allocate their assets.
Cash Equitisation: Investors typically seek exposure to equity markets, but often
need time to make investment decisions. ETFs provide a "parking place" for cash
that is designated for equity investment. Because ETFs are liquid, investors can
participate in the market while deciding where to invest the funds for the longer-
term - thus avoiding potential opportunity costs. Historically, investors have relied
heavily on derivatives to achieve temporary exposure. However, derivatives are not
always a practical solution. The large denomination of most derivative contracts can
28
preclude investors -- both institutional and individual -- from using them to gain
market exposure. In this case and in those where derivative use may be restricted -
ETFs are a practical alternative.
Hedging Risks: ETFs are an excellent hedging vehicle because they can be
borrowed and sold short. The smaller denominations in which ETFs trade relative to
most derivative contracts provides a more accurate risk exposure match, particularly
for small investment portfolios.
Arbitrage (Cash Vs Futures) and Covered Option Strategies. : ETF's can be

used to arbitrage between cash and futures market, as it is very easy to trade. ETF's
can also be used for cover option strategies on the index.
What happens if constituents in the underlying index change?

Constituents of an index are changed as and when securities in the index do not
match specific criteria laid down by the index service provider. The index service
provider usually makes announcements of change well in advance. Once securities in
the underlying index are changed, the fund would change the securities in its
underlying portfolio by selling the securities that are being removed from the index
and including those that are included in the index. This will in no way affect the units
being held by an investor, as the units will continue to track the index. The only effect
may be on the tracking error of the scheme.
Index changes are usually not so frequent. In India, historically, around 10% of the
index constituents have changed annually which means an index of 50 securities
would experience about 5 changes every year.
29
What Are the Risks of Investing in ETFs?

All investments, including ETFs, involve varying degrees and types of risk, including
the potential loss of money. While investment diversification mitigates the effect of a
decline in the value of any one security in an ETF portfolio, an ETF's value could
decline due to larger economic events or policy changes affecting the underlying
index (e.g., a recession). This is known as market risk. ETFs tracking a bond index
are also subject to interest rate risk, which is the possibility that changes in interest
rates will lower the price of bonds and reduce the value of an ETF's portfolio.
Who Regulates ETFs?

The vast majorities of exchange-traded funds are registered with the Securities and
Exchange Commission (SEC) and must comply with the applicable provisions of the
Investment Company Act, except to the extent the fund or trust has received
exemptive relief from the Act.
Exchange-traded funds have obtained exemptive relief to
 Allow them to register as mutual funds under the Act even though their
shares are not individually redeemable (ETFs are, however, prohibited from
referring to themselves as mutual funds.);
 Permit affiliated entities to purchase and redeem shares in kind rather than in
cash; and
 Enable their shares to trade at negotiated prices on an exchange rather than
at a current offering price described in the prospectus or at a price based on
net asset value (NAV).
As of 2006, about 3 percent of ETF assets were not registered with or regulated by
the SEC under the Investment Company Act. These ETFs are commodity-based.
Those ETFs that invest in commodity futures are regulated by the Commodity
Futures Trading Commission (CFTC), while the ETFs that invest solely in physical
commodities are not regulated by the CFTC.
30
Legal Structures of Exchange-Traded Funds

There are 3 main legal structures for exchange-traded funds, which determines, to
some extent, how they operate. An ETF organized as an open-end mutual fund or a
unit investment trust are required to register as investment companies under the
Investment Company Act of 1940.
ETFs Organized as an Open-End Fund

An exchange-traded fund organized as an open-end investment company must
supply investors in the secondary market with a Product Description, or profile,
which summarizes key information contained in the fund’s prospectus, such as the
fund's investment objectives, principal investment strategies, principal risks,
performance, fees and expenses, identity of the fund’s investment adviser,
investment requirements, and other information, and informs investors on how to
obtain a prospectus. Authorized Participants automatically get a prospectus.
Statements of additional information (SAI) must be provided upon request

free of charge. The SAI generally includes the fund’s financial statements and
information (or additional information) about: the history of the fund; some fund
policies (such as on borrowing and concentration policies); officers, directors, and
persons who control the fund; investment advisory, and other services; brokerage
commissions; tax matters; and performance such as yield and average annual total
return information.
The open-end fund must also provide shareholders with annual and semi-annual
reports, 60 days after the end of the fund’s fiscal year and 60 days after the fund’s
fiscal mid-year. These reports contain a variety of updated financial information, a
list of the fund’s portfolio securities, and other information.
Open-end ETFs reinvest dividends as soon as they are received and are paid out
quarterly. To increase income, the fund can include derivatives in its portfolio and
lend its securities.
31
ETFs Organized as Unit Investment Trusts
Although ETFs organized as unit investment trusts (UIT) track an index, they
are restricted as to security weightings. These restrictions include the following: no
asset can compose more than 25% of the index; in diversified funds, securities that
have a weighting of 5% or greater cannot compose more than 25% of the fund; and
with funds in more restricted sectors, these assets cannot compose more than 50% of
the fund. Dividends are paid quarterly, but are not reinvested. The best example of
this kind of trust is the NASDAQ-100 Trust, which sponsors the QQQQ ETF and is
currently the most actively traded ETF.
Exchange-Traded Grantor Trusts
The exchange-traded grantor trust is not a registered investment company, and

is not an actual ETF. Investors have voting rights in the companies composing the
fund, and the investors can create or redeem shares in round lots of 100. Dividends
are not reinvested and are paid immediately to investors. Holding Company
Depositary Receipts (HOLDRs), a proprietary product of Merrill Lynch, is an
example of the exchange-traded grantor trust. HOLDRs generally cover a narrow
sector of the market, such as the Biotech (BBH) or Broadband (BDH) HOLDRs.
The portfolio of the exchange-traded grantor trust does not change, and, thus, cannot
be rebalanced, which can lead to less diversification as some of the companies grow
larger than the others in the portfolio, nor can stocks that fit the trust’s profile be
added later. Thus, it is inevitable that, over time, these trusts will become less
diversified. For example, Internet Holding Co. Holdrs Trust (HHH) has more than
50% of its portfolio invested in just Yahoo and eBay, but none in Google, because
Google had it’s IPO after this HOLDR was created.
32
Comparison of ETFs with Index Futures

Index Futures have gained wide acceptance globally as a tradable means of shifting
exposure to indices. Index Futures are advantageous when the implied cost of carry
is less than the actual cost of carry. In addition, an investment in ETFs requires
investment of the entire notional value, while an investment in futures requires
posting of an initial collateral deposit and then daily market to market margins
which represent a small fraction of the notional value, allowing leverage.
ETFs are beneficial over Index Futures in many situations:
 When investors cannot or prefer not to trade index futures

 When cash flows are small and investors do not have enough cash to purchase
a futures contract
 For longer-term horizons, index futures need to be rolled over every quarter
which has its own risk and costs
 If regulations prevent investors from investing in futures
 Taxation issues: With Index Futures investors can avail of only short-term
capital gains while with ETFs, investors can avail long-term capital gains
 If the discount in ETFs is greater than the discount in futures
33
FAMILIES/ISSUERS OF EXCHANGE TRADED FUNDS
1. BGI/iShares
14. MacroShares
2. SSgA
15. X-Shares
3. Vanguard
16. Goldman Sachs
4. Invesco/PowerShares
17. Fidelity
5. ProFunds
18. Bear Stearns
6. Bank of NY
19. Northern Trust
7. Merrill (HOLDRs)
20.Greenhaven
8. Rydex
21. FocusShares
9. Van Eck
22. SPA
10. Wisdom Tree
23. RevenueShares
11. Claymore
24. Ziegler
12. Ameristock/Victoria Bay
25. ETF Total
13. First Trust
34
ETF PERFORMANCE GLOBALLY
New ETFs Are Reaching Untapped Markets, Offering Innovative Strategies

So far, 2008 has been an interesting year for exchange traded funds (ETFs).
Between Dec. 28, 2007, and May 16 of this year, 50 new ETFs have launched. Matthew
Hougan for Index Universe counts three of them as "major successes," defined by him
as having $100 million or more in assets:
 WisdomTree India Earnings (EPI): $267 million in assets; down 11.7% since
Feb. 26 launch
 Market Vectors Coal (KOL): $237 million; up 30.6% since Jan. 15 launch
 Claymore/Mac Global Solar Energy (TAN): $116 million; up 10.5% since April
15 launch
Many of the newer ETFs cover areas of the market that have been untapped and/or offer
new strategies.
Bear Stearns Current Yield Fund (YYY) was the first actively managed ETF to hit the
market. EPI India fund benefits investors because it was the first of its kind to market and
covers an area that was in high demand by investors.
Coal and solar are both new and growing asset classes which take advantage of the search
for new energy sources, a topic that is at the forefront of many people's minds at the
moment.
Katy Marquardt for U.S. News & World Report lists 10 things investors need to know about
them. We've highlighted the most interesting ones:
 ETFs aren't new. You may have just heard about them, but in the United States, the
first one launched in 1993. Known as the SPDRs (ticker symbol SPY and pronounced
"spiders"), it tracks the S&P 500. Today, there are more than 600 ETFs.
 Despite how quickly they're growing, ETFs are still a relatively small portion of
investors' dollars. At the end of March, there were $571 billion in assets in ETFs.
Compare that with roughly $12 trillion in mutual funds. But it also took mutual
funds 45 years to reach $600 billion in assets.
35
 Fees are low, but not always. There are some ETFs that charge higher fees, but as
competition increases, this issue may resolve itself. And even so, the fee in a
particular ETF might be higher than the average, but it also still may be cheaper than
a mutual fund or individual stock-picking.
 ETFs want your retirement money. There's a big push to start getting ETFs into
401(k) plans, but what's taking so long? Investors need to start taking charge and
talk to their human resources department to find out why ETFs aren't available to
them. The ETF industry is watching this issue closely, and you haven't heard the last
of it.
Worldwide ETF Growth Chart
36
The Most Successful ETFs This Year

Those funds have $267 million, $237 million and $116 million in assets, respectively.
Knocking on the door of the $100 million figure are the SPDR DB International
Government Inflation-Protected Bond ETF (WIP) and PowerShares Preferred Portfolio
(PGX), which have $96 million and $90 million, respectively.
All numbers are through May 16, 2008.
ETFs Launched Since January 1, 2008 - Sorted By Assets
Fund Company Ticker Assets ($)
WisdomTree India Earnings Fund WisdomTree EPI 266,988,000
Market Vectors - Coal ETF Van Eck KOL 236,882,500
Claymore/MAC Global Solar Energy Index ETF Claymore TAN 116,524,800

SPDR DB International Government Inflation-
Protected Bond ETF SSgA WIP 95,904,000
PowerShares Preferred Portfolio PowerShares PGX 89,958,000
Bear Stearns Current Yield Fund Bear Stearns YYY 50,215,000

iShares MSCI Turkey Investable Market Index
Fund BGI TUR 43,464,000
PowerShares India Portfolio Fund Exchange
Traded Fund PowerShares PIN 42,770,400
GreenHaven Continuous Commodity Index
Fund GreenHaven GCC 32,167,000
iShares MSCI Thailand Investable Market Index
Fund BGI THD 30,666,000
SPDR S&P International Dividend ETF SSgA DWX 29,832,000

PowerShares Global Nuclear Energy Portfolio
ETF PowerShares PKN 24,642,000
37
Market Vectors - Lehman Brothers AMT-Free
Long Municipal Index ETF Van Eck MLN 24,315,000
ProShares UltraShort Lehman 20+ Year
Treasury ProShares TBT 20,997,000
RevenueShares Large Cap Fund ETF RevenueShares RWL 20,936,575
WisdomTree Dreyfus Euro Fund WisdomTree EU 20,064,000
United States Gasoline Fund, LP Victoria Bay UGA 17,598,000
NETS TM TOPIX® Index Fund (Japan) NETS TYI 16,140,000

ProShares UltraShort Lehman 7-10 Year
Treasury ProShares PST 15,770,250
ProShares Ultra Telecommunications ProShares LTL 13,266,000
Market Vectors-Solar Energy ETF Van Eck KWT 12,921,000

Claymore/AlphaShares China Small Cap Index
ETF Claymore HAO 11,822,400
United States Heating Oil Fund, LP Victoria Bay UHN 11,796,000

Claymore US-1 - The Capital Markets Index
ETF Claymore UEM 10,330,000
WisdomTree Dreyfus Brazilian Real Fund WisdomTree BZF 10,100,000
WisdomTree Dreyfus Chinese Yuan Fund WisdomTree CYB 9,980,000
WisdomTree Dreyfus Indian Rupee Fund WisdomTree ICN 9,896,000
iShares MSCI Israel BGI EIS 8,211,000
ProShares UltraShort Telecommunications ProShares TLL 8,125,500
SPDR S&P International Mid Cap ETF SSgA MDD 7,150,000
RevenueShares Mid Cap Fund ETF RevenueShares RWK 5,465,996
SPDR S&P Emerging Markets Small Cap ETF SSgA EWX 5,307,000
38
RevenueShares Small Cap Fund ETF RevenueShares RWJ 5,166,917
NETS DAX Index Fund NETS DAX 5,154,000
SPDR DJ Wilshire Global Real Estate ETF SSgA RWO 5,064,000
Cohen & Steers Global Realty Majors ETF ALPS ETF GRI 5,008,200
Claymore U.S. Capital Markets Micro-Term
Fixed Income ETF Claymore ULQ 5,007,000
Market Vectors-Lehman Brothers AMT-Free
Short Municipal Index ETF Van Eck SMB 4,955,000
Claymore U.S. Capital Markets Bond ETF Claymore UBD 4,954,000
Market Vectors - Gaming ETF Van Eck BJK 3,904,000
PowerShares- Active Alpha Q Fund PowerShares PQY 2,804,770
PowerShares- Active Alpha Multi-Cap Fund PowerShares PQZ 2,750,230
PowerShares- Active Mega-Cap Portfolio PowerShares PMA 2,678,520
NETS S&P/ASX 200 Index Fund NETS AUS 2,674,000
CAC 40® Index Fund (France) NETS FRC 2,601,000
NETSTM Hang Seng Index Fund (Hong Kong) NETS HKG 2,597,000
NETS FTSE 100 Index Fund NETS LDN 2,575,000
NETS FTSE/JSE Top 40 Index Fund NETS JNB 2,531,000
NETS S&P/MIB Index Fund NETS ITL 2,490,000
PowerShares- Active Low Duration Portfolio PowerShares PLK 2,488,640

NETS FTSE Singapore Straits Times Index
Fund NETS SGT 2,466,000
Source: American Stock Exchange
39
Company-By-Company Basis
Another interesting way to look at this data is to sort things by company. So far this year,
WisdomTree's new ETFs have attracted the most assets ($317 million), which explains some
of that company's success in boosting total assets under management from $4 billion to $5
billion.
Van Eck takes a strong second place with $283 million, followed by PowerShares at $168
million, Claymore at $148 million and SSgA at $143 million.
Here's the full table, sorted by assets.
ETFs Launched Since January 1,

2008
Company Funds Assets ($)
WisdomTree 5 317,028,000
Van Eck 5 282,977,500
PowerShares 7 168,092,560
Claymore 5 148,638,200
SSgA 5 143,257,000
BGI 3 82,341,000
ProShares 4 58,158,750
Bear Stearns 1 50,215,000
Northern Trust 9 39,228,000
GreenHaven 1 32,167,000
RevenueShares 3 31,569,488
Victoria Bay 2 29,394,000
ALPS 1 5,008,200
Source: American Stock Exchange
40
April Showers Bring May ETF Flowers
Twenty-three new ETFs were added to the fold in May, and the most positive performance
was seen by global equity markets, according to ETF Snapshot. The industry also pulled in
another $17 billion in assets.
The number of available ETFs grew by 34.7%, from May 2007, while total assets grew 26.1%
from the previous year.
As of May 31, there were 683 ETFs in the US --- with assets totaling approximately $612BN
--- Managed by 25 ETF managers.
US LISTED ETF ASSET GROWTH
41
ETF INDUSTRY DETAILS:
Asset Classes — Overall
 Global equity prices rose for a second consecutive month. The S&P 500 gained 1.3%
while MSCI EAFE gained 0.97%. US bond prices fell for the second consecutive month
with the Lehman U.S. Aggregate Index dropping 0.73%.
 Commodity and International assets saw strong increases.
FIGURE 2: CHANGE IN ETF ASSETS AND NUMBERS BY TYPE
MAY APRIL Δ YTD Δ
CURRENT ASSET ASSET

# OF # OF ASSETS # OF ASSETS
CATEGORY ASSETS CHANGE CHANGE
ETFs ETFs (MM) ETFs (MM)
(MM) (%) (%)
BROAD 10 $16,347 - $618 3.9 - $402 2.5

COMMODITY 22 $32,038 - $2,226 7.5 2 $6,381 24.9
CURRENCY 16 $5,009 5 $442 9.7 5 $1,487 42.2

DIVIDEND/FUNDAMENTAL 105 $13,612 - 4
-$32 -0.2 -$811 -5.6
FIXED INCOME 56 $43,035 1 $747 1.8 8 $8,269 23.8
GLOBAL 14 $5,715 2 $332 6.2 2 $475 9.1
INTERNATIONAL 112 $165,997 10 $5,338 3.3 22 $1,045 0.6

INVERSE/LEVERAGED 68 $18,089 2 $1,209 7.2 6 $8,478 88.2
SECTOR 138 $61,993 - - $4,290 7.4

-$2,751 -4.2
SIZE 33 $170,163 - $3,425 2.1 2
-$26,757 -13.6
SPECIALTY 63 $10,423 3 $1,390 15.4 5 $2,980 40.0
STYLE 46 $69,322 - $3,974 6.1 -2 -$2,167 -3.0

TOTALS 683 $611,743 23 $16,918 2.8 54 $4,071 0.7
42
SIZE/STYLE
Both Small and Mid Cap saw assets rise in double-digit percentage terms for the month.
Small Cap assets were up 17%.
FIGURE 3: CHANGE IN ETF ASSETS BY MARKET CAP/STYLE
MAY APRIL Δ YTD Δ
ASSET ASSET
# OF CURRENT # OF ASSETS # OF ASSETS
CATEGORY CHANGE CHANGE
ETFs ASSETS (MM) ETFs (MM) ETFs (MM)
(%) (%)
BROAD 10 $16,347 - $618 3.9 - $402 2.5
SIZE - LARGE 16 $132,467 - -$1,016 -0.8 1 -$27,077 -17.0

CAP
SIZE - MICRO 3 $396 - $5 1.3 - -$61 -13.4

CAP
SIZE - MID 7 $20,057 - $1,851 10.2 - -$15 -0.1

CAP
SIZE - SMALL 7 $17,243 - $2,584 17.6 1 $396 2.3

CAP
GROWTH 23 $39,134 - $2,327 6.3 -1 -$1,245 -3.1
VALUE 23 $30,188 - $1,647 5.8 -1 -$923 -3.0
TOTALS 89 $255,832 - $8,017 3.2 -

-$28,522 -10.0
43
SECTOR
There were large outflows in both the Financial and REIT sectors.
FIGURE 4: CHANGE IN ETF ASSETS BY US SECTOR
MAY APRIL Δ YTD Δ
ASSET ASSET
# OF ASSETS # OF ASSETS # OF ASSETS
CATEGORY CHANGE CHANGE
ETFs (MM) ETFs (MM) ETFs (MM)
(%) (%)
CONSUMER 8 $2,177 - -$499 -18.7 - $570 35.5

DISCRETIONARY
CONSUMER 10 $3,505 - -$236 -6.3 - $293 9.1

STAPLES
ENERGY 11 $11,960 - $894 8.1 - -$495 -4.0
FINANCIALS 14 $9,732 - -$2,181 -18.3 - $2,589 36.2
HEALTH CARE 33 $5,215 - $108 2.1 - -$298 -5.4
INDUSTRIALS 9 $3,802 - $47 1.2 - $400 11.8
MATERIAL 7 $4,914 - -$282 -5.4 - $711 16.9
REIT 17 $7,874 - -$1,150 -12.7 - $1,160 17.3
TECHNOLOGY 23 $9,236 - $603 7.0 - -$460 -4.7
UTILITIES 6 $3,578 - -$54 -1.5 - -$179 -4.8
TOTALS 138 $61,993 - - $4,290 7.4

-$2,751 -4.3
44
MANAGER AND FUND DETAIL
The top three managers in the US ETF marketplace were BGI, State Street, and Vanguard.
Collectively, they accounted for approximately 85% of the US-listed ETF market.
FIGURE 5: US ETF ASSETS BY MANAGER
MAY 2008 YTD Δ

# OF ASSETS MARKET # OF ASSETS MARKET
MANAGER
ETFs (MM) SHARE (%) ETFs (MM) SHARE (%)
STATE STREET 70 $141,453 23.1 5 -$16,652 -2.9

ALPS 1 $5 0.0 1 $5 0.0
AMERISTOCK 5 $13 0.0 - $ 0.0
BEARS STEARNS 1 $50 0.0 1 $50 0.0
BGI 159 $325,055 53.1 5 -$4,024 -1.0
BNY 6 $27,674 4.5 - -$5,411 -0.9
CLAYMORE 30 $2,371 0.4 -6 $439 0.1
FIDELITY 1 $109 0.0 - 0.0
-$5
FIRST TRUST ADVISORS 36 $1,086 0.2 - $70 0.0
FOCUSSHARES 4 $18 0.0 - 0.0
-$5
GREENHAVEN 1 $32 0.0 1 $32 0.0
LONDON AND CAPITAL ASSET 6 $20 0.0 - $4 0.0
MANAGEMENT
MACROSHARES 2 $988 0.2 - $928 0.2

NORTHERN TRUST 14 $52 0.0 14 $52 0.0
POWERSHARES 107 $14,157 2.3 12 $196 0.0
POWERSHARES/DB 11 $6,919 1.1 - $3,298 0.5
COMMODITY SERVICES
PROSHARES 62 $17,957 2.9 4 $8,337 1.4

REVENUESHARES 3 $31 0.0 3 $31 0.0
RYDEX 31 $6,143 1.0 - $663 0.1
VAN ECK 13 $6,551 1.1 5 $2,958 0.5
45
MAY 2008 YTD Δ
# OF ASSETS MARKET # OF ASSETS MARKET
MANAGER
ETFs (MM) SHARE (%) ETFs (MM) SHARE (%)
VANGUARD 37 $54,137 8.8 - $12,075 1.9

VICTORIA BAY ASSET 5 $1,655 0.3 2 $554 0.1
WISDOMTREE 46 $4,995 0.8 7 $472 0.1
XSHARES 31 $266 0.0 - $7 0.0
ZIEGLER CAPITAL 1 $5 0.0 - 0.0
MANAGEMENT -$3
Volume was relatively stable at $66BN, up from $63BN a month ago. This represents more
than 10% of the total value of the US ETF market.
46
FIGURE 6: TOP US ETFS BY TRADING VOLUME (AS OF MAY 31, 2008)
AVG. DAILY SHARE AVG. DAILY DOLLAR

ETF TICKER
VOLUME (MM) VOLUME (MM)
S&P 500 SPDR SPY 177 $24,791
NASDAQ-100 INDEX TRACKING QQQQ 129 $6,473

STOCK
ISHARES RUSSELL 2000 IWM 63 $4,679
ENERGY SELECT SECTOR SPDR XLE 27 $2,317
FINANCIAL SELECT SECTOR XLF 85 $2,107

SPDR
ISHARES MSCI EM EEM 12 $1,781
DOW DIAMONDS - DJIA DIA 11 $1,421
ULTRASHORT QQQ QID 34 $1,285

PROSHARES
ULTRA QQQ PROSHARES QLD 14 $1,276
ISHARES MSCI-BRAZIL EWZ 13 $1,267
The top three US ETFs in terms of dollar volume traded for the month were the SPDR S&P
500 [SPY], the most liquid stock in the world; the NASDAQ 100 Index Tracking Stock
[QQQQ]; and the iShares Russell 2000 Index Fund [IWM].
The top three US ETFs in terms of assets were the SPDR S&P 500 [SPY], the iShares MSCI
EAFE Fund [EFA], and the iShares MSCI Emerging Markets ETF [EEM].
47
ETF MARKET FIVE YEARS DOWN THE LINE:
Cliff Weber, executive vice president of development and strategy, American

Stock Exchange: Over the past five years, the ETF universe has exploded. The number of
ETFs in the U.S. has grown from 130 to 646; the number of domestic issuers has increased
from five to 23; assets under management have increased from $101.6 billion to $620.5
billion. [These numbers compare the end of 2002 with the end of 2007.] This growth has
been fueled by the increasing awareness and acceptance of the ETF structure, the expansion
of the product category to include new asset classes like commodities, and the extension of
the product into narrower sub-segments of the market and into more strategy-based and
theme-based indexes.
I think the next significant trend that will drive ETF growth will be the introduction of true
active management into the ETF structure. ETFs ultimately are a very flexible and efficient
distribution platform. The successful extension of this platform to truly actively managed
portfolios will open the category up to the many, many investment managers that currently
do not issue ETF shares because they don't run index funds and don't want to disclose their
funds' holdings. The net result will be a much broader base of issuers. And while I don't
expect that many of these new funds will be very active traders, I'm quite sure that once
these funds are available, smart investors will create new and innovative ways to use them
for alpha capture strategies, etc.
48
“EXCHANGE TRADED FUNDS

IN INDIA”
49
INDIAN EXCHANGE TRADED FUNDS

Exchange Traded Funds in India listings include gold, silver and currencies. ETF funds are a
new alternative to investing in mutual funds and hedge fund as they minimize the risk
involved in the investment in other finance solutions. Assets of India’s exchange-traded
funds (ETFs) increased by more than six times in the past one and a half years, aided by the
India growth story. Their assets under management increased to Rs.63.77billion as on
September 30, 2007, from Rs.8.69 billion as on March 31, 2006.
According to Krishnan Sitaraman, Head – FundServices and Fixed Income

Research, CRISIL, “The continuing bull run in the Indian market has led to renewed
interest and participation in the equity markets. This has also led to higher valuations,
increased volatility, and broadening of the stock markets, resulting in ETFs and index funds
gaining in popularity.”
Most ETFs in India are index funds. Notable among them are Nifty Benchmark Exchange
Traded Scheme (BeES), Bank BeES, and Liquid BeES. Recently, several fund houses also
launched gold funds in the form of ETFs.
The first ETF in India, Nifty BeES, based on the S&P CNX Nifty, was launched in January
2002. However, ETFs did not gain popularity overnight because they were vastly
outperformed by active funds until recently. Also, ETFs being a recent and complex
innovation, retail investor acceptance for them was slow in the initial years. In recent years,
however, the popularity of ETFs has been growing in India on the back of the continuing
bull run, and the increasing volatility and broadening of the stock markets. At present, Bank
BeES, a banking sector ETF that tracks the CNX Bank Index, is the most popular ETF.
As for the BSE, there’s one ETF tracks the BSE Sensex 30 index - the SPIcE. It was launched
in 2003, suspended in 2005 & then re-launched in 2006.
The ETF advantages include the flexibility they offer in terms of trading along with the pros
of mutual funds securities. ETF funds are available in different forms and can be selected as
per the requirements. These include ETF bond funds, ETF dividends, ETF hedge fund, ETF
junk bonds, ETF mutual funds, ETF real estate stocks, ETF iShares, and many more forms.
50
ETFS IN INDIA
1. Nifty BeES
2. Liquid Benchmark Exchange Traded Scheme (Liquid BeES)
3. Junior Nifty BeES
4. Bank BeES
5. S&P CNX Nifty UTI Notional Depository Reciepts Scheme (SUNDER)
6. PSUBNKBEES
7. KOTAKPSUBK
8. KOTAK SENSEX ETF
9. QNIFTY
10. RELBANK
11. GOLDBEES
12. UTI GOLDSHARE
13. KOTAKGOLD
14. RELGOLD
15. QUANTUMGOLD
51
1. NIFTY BEES
Investment Objective:
The investment objective of Nifty BeES is to provide investment returns that, before
expenses, closely correspond to the total returns of securities as represented by the S&P
CNX Nifty Index.
Nifty BeES trades on the Capital Market segment of NSE. Each Nifty BeES unit is 1/10th of
the S&P CNX Nifty Index value. Nifty BeES units are traded and settled in dematerialised
form like any other share in the rolling settlement.
Nifty BeES
 Allotment Date : December 28, 2001
 Average AUM For The Month : Rs. 408.71 Cr.
 NAV : Rs.409.4035
 First Exchange Traded Fund (ETF) in India
 Combination of a Share and a Mutual Fund Unit
 Real-Time Trading on NSE
 Tracks the S&P CNX Nifty Index priced at 1/10th of the Nifty Index
 Minimum Lot-size for Real-time Cash Creation / Redemption with the Fund is
10,000 units
Nifty BeES
ISIN code INF732E01011
NSE symbol NIFTYBEES
Series EQ
Reuters code NBES.NS
Face value Rs. 10
Reuters NBES.NS
52
Bloomberg NBEES:IN
Total Expense Ratio 0.50% p.a.
Tracking Error 0.19% annualized
Entry/Exit Load NIL
Performance History of Nifty BeES
S INC E
1M TH 3 M TH S 6 M TH S 1 YR 3 YR S 5 YR S INC EP TIO N
N ifty BeES -16.9 2% -14.4 5% -34.0 5% -6.16% 23.84% 31.00% 24.75%
CN X N ifty Index
-17.0 3% -14.6 6% -34.1 8% -6.40% 22.06% 28.89% 23.29%
(Ben chm ark Retu rns)
Total R eturn s -16.9 7% -14.4 5% -33.9 3% -5.60% 23.75% 31.08% 25.52%

In dex
53
Golden Peacock Award
Nifty BeES won the Golden Peacock Award for the Most Innovative Financial Product in
2002-03 given by the Institute Of Directors (IOD), New Delhi.
Advantages of Nifty BeES
 Nifty BeES is Simple: Nifty BeES can be bought / sold like a share through any NSE
terminal at prices available on the screen. The underlying portfolio of Nifty BeES
very closely replicates that of the S&P CNX Nifty. Hence, Nifty BeES tracks the
movement of S&P CNX Nifty.
 Nifty BeES is Economical: Nifty BeES is a no load scheme. The annual expense
ratio including management fees is a maximum of 0.80% of the Daily Average Net
Assets, which is one of the lowest for any mutual fund scheme in India. The costs
reduce further to 0.65%, for assets over Rs.500 crore.
 Nifty BeES is Convenient: As it is listed and traded on the NSE, Nifty BeES can be
bought / sold throughout the trading day just by a call to your broker. This gives you
the power to react swiftly to changes in the market. You can even place limit orders.
Nifty BeES can be held in your DP account with other portfolio holdings.
 Nifty BeES is Liquid: The structure of Nifty BeES attracts liquidity from various
sources such as buying / selling by investors, arbitrage with index futures, arbitrage
by authorized participants with the underlying shares.
 Nifty BeES is Neutral: The performance of Nifty BeES is simply the result of
performance of shares in the S&P CNX Nifty Index and demand & supply in the
market. There is no Fund manager bias.
 Nifty BeES is Transparent: As Nifty BeES replicates the S&P CNX Nifty, investors
can know at any given point of time where and how much is invested in each stock.
54
 Nifty BeES gives Instant Diversification: Investing in just one unit gives exposure
to fifty shares of the S&P CNX Nifty. This allows investors to spread risk with one
single decision.
 Nifty BeES is an Equitable Structure: The unique “in-kind” mechanism of

creating / redeeming Nifty BeES by exchanging a pre-defined portfolio ensures that
long-term investors do not bear the cost of short term trading as observed in
traditional Open-ended structure. This insulates long-term investors from short-
term trading activity.
55
2. LIQUID BENCHMARK EXCHANGE TRADED SCHEME (LIQUID BEES)
Liquid BeES (Liquid Benchmark Exchange Traded Scheme) is the first money market ETF
(Exchange Traded Fund) in the world. The investment objective of the Scheme is to provide
money market returns. Liquid BeES will invest in a basket of call money, short-term
government securities and money market instruments of short and medium maturities. It is
listed and traded on the NSE – Capital Market Segment and is settled on a T+2 Rolling
basis.
The Fund will endeavor to provide daily returns o the investors, which will accrue in the
form of daily dividend, which will be compulsorily reinvested in the Fund daily. The units
arising out of dividend reinvestment will be allotted and credited to the Demat account of
the investors at the end of every month. Such units of Liquid BeES will be allotted and
credited daily, up to 3 decimal places.
NSDL and CDSL have waived all the charges (including Custodian charges) relating to
transactions in Liquid BeES in the NSDL and CDSL depository systems respectively.
Liquid BeES
 Allotment Date : July 08, 2003

 Benchmark Index : Crisil Liquid Fund
 NAV : Rs.1000
 Face Value : Rs.100 Per Unit
 Minimum Lot : One unit/share
56
Liquid BeES

NSE symbol LIQUIDBEES
Series EQ
Face value Rs. 100
Entry/ Exit load NIL
Depository charges NIL

Reuters LBES.NS
Bloomberg LBEES:IN
Total Expense Ratio 0.60% p.a
PERFORMANCE:
57
How can an investor invest/ redeem Liquid BeES units ?
An investor can invest / redeem Liquid BeES in two ways:
1. Buy/ Sell directly on NSE, Minimum 1 unit of Rs. 1000

2. Directly from the Fund, with a Minimum Subscription of Rs.25 lacs and minimum
redemption of 2500 units on T+1 settlement subject to clearance of funds/ transfer of units.
Advantages of Liquid BeES
For Investors
 Earn returns on idle funds
 Set off trades from equity to cash and from cash to equity
 Ability to earn higher returns than a savings account, with the same liquidity as cash
 Ability to earn returns for less than 7 days
 Can be used for paying margins to brokers
For Brokers
 Lesser working capital and efficient cash management
 Can be used for paying margins to the Stock Exchange - SEBI vide its circular no.
SEBI/SMD/SE/Cir-22/2003 dated June 11, 2003 has directed the stock exchanges
to include Liquid Mutual Fund units in the list of securities eligible as “Cash or Cash
Equivalent” for the Cash Component portion of the Additional Capital and Margins.
58
An Example of how Liquid BeES can be used by investors
Currently, if an investor sells shares on NSE, he adopts the following procedure:
1. Sell shares worth Rs. 1,00,000 on Monday (Day T)
2. The payout will normally take place on Wednesday (Day T+2).
3. The broker will issue a cheque for this amount to the investor after the payout i.e. on
Thursday (Day T+3).
4. The investor deposits this amount in his/ her bank on the next day (T+4).
5. The money will be available in the investor’s bank account only on next Monday
(T+7).
The investor does not earn any returns from the day he/ she sold to the day he/ she receives
payout i.e. 7 Days.
Let us say that instead, the investor adopts the following procedure using Liquid BeES:
1. Sells shares worth Rs. 1,00,000 on Monday (Day T)
2. Simultaneously buys Liquid BeES worth Rs. 1,00,000 on Monday (Day T)
3. On payout day, Wednesday (Day T+2), the payout from sale of shares will be netted
off against the payin for purchase of Liquid BeES.
4. The broker will not receive pay-out of funds for sale of shares.
5. Instead, the investor directly gets 100 units of Liquid BeES in his/ her demat account
on Wednesday (Day T+2).
6. He starts earning interest immediately from Day T+2
In short, the investor gets money market returns on Liquid BeES from the day he/ she
receives the units in his demat account i.e. T+2, instead of the earlier scenario when he got
59
funds in his bank account on T+7. Liquid BeES gives returns just like cash for him.
Similarly, if the same investor buys shares worth Rs. 1,00,000 on NSE on Monday
(Day T), he adopts the following procedure:
 He/ she has to transfer funds into his broker’s account latest by Tuesday
(Day T+1).
 He has to write a cheque to the broker by Monday (Day T) itself.
The investor loses interest on funds for at least 1 day, because he needs to transfer the funds
to the broker at least 1 day before the payout.
Instead, if the investor adopts the following procedure using liquid BeES, he
will get returns for one extra day:
1. Buy shares worth Rs. 1,00,000 on the next Monday,
2. Simultaneously sell Liquid BeES (he needs to own the units before selling) worth Rs.
1,00,000 on Monday (Day T).
3. On payout day, Wednesday (Day T+2), the payout from the sale of Liquid BeES will
be netted off against the pay-in for the purchase of shares.
4. The investor need not pay-in separate funds for purchase of shares but will receive
the shares
5. The investor will receive interest on the units of Liquid BeES till the day the units of
Liquid BeES remain in his/ her demat account i.e. Wednesday (Day T+2).
60
3. JUNIOR NIFTY BEES
The investment objective of Junior BeES is to provide returns that, before expenses, closely
correspond to the returns of securities as represented by the CNX Nifty Junior Index.
Junior BeES trades on the Capital Market segment of NSE. Each Junior BeES unit is
1/100th of the CNX Nifty Junior Index value. Junior BeES units are traded and settled in
dematerialised form like any other share in the rolling settlement.
Junior BeES

NSE symbol JUNIORBEES
Series EQ
Reuters code JBES.NS
Face value Rs. 10
Reuters JBES.NS
Bloomberg JBEES:IN
Entry/Exit Load NIL
Junior BeES
 Allotment Date : February 21, 2003
 NAV : Rs. 63.5256
 Second Exchange Traded Fund (ETF) from Benchmark Asset
 Management Company Pvt. Ltd
 Tracks the CNX Nifty Junior Index (Currently no other Index Funds available on this
Index)
61
 Each unit is priced at 1/100th of the CNX Nifty Junior Index
 Minimum Lot-size for Real-Time Cash Creation / Redemption with the Fund is
16,000 units
Performance History of Junior BeES
As on 30th june 2008 Source: Benchmark
62
4. S&P CNX NIFTY UTI NOTIONAL DEPOSITORY RECIEPTS SCHEME

(SUNDER)
S&P CNX NIFTY UTI NOTIONAL DEPOSITORY RECIEPTS SCHEME (SUNDER) is a

passively managed open-ended exchange traded fund, with the objective to provide
investment returns that, before expenses, closely correspond to the performance and yield
of the basket of securities underlying the S&P CNX NIFTY Index. SUNDER will have all
benefits of index funds such as diversification, low cost and a transparent portfolio and the
flexibility of trading like a share. Thus it provides the best features of both open-ended fund
and a listed stock.
SUNDER commenced trading on NSE on July 16, 2003.
ISIN code INF789F01042

NSE symbol UTISUNDER
Series EQ
Face value Rs. 100
Highlights
 Face value of each units of SUNDER is Rs.100/-.
 Valuation of each unit of SUNDER will be approximately 1/10th the value of S&P
CNX NIFTY.
 SUNDER shares will traded on NSE in compulsory dematerialised form
 Minimum trading lot for SUNDER share in the markets will be 1 unit.
 Creation unit size (10,000 units plus multiples of 2,000 units in case of "Authorised
Participants" and 500,000 units plus multiples of 20,000 units for other investors)
 NAV of SUNDER declared on a daily basis.
 Initial expenses of the present scheme will be borne by UTI AMC.
63
3. BANK BEES: (An Open-ended Equity Exchange Traded Scheme)
The investment objective of Bank BeES is to provide returns that, before expenses, closely
correspond to the total returns of securities as represented by CNX Bank Index. Unit of
Bank BeES has a face value of Rs.10/- each and will be approximately equal to 1/10th of the
value of the CNX Bank Index. Bank BeES have benefits of index funds such as low cost and a
transparent portfolio.
Bank BeES
 Allotment Date : May 27, 2004
 Average AUM For The Month : Rs. 1,141.46 Cr.
 NAV : Rs. 507.4955
 Tracks the CNX Bank Index
 CNX Bank Index consists of 12 key Banking Stocks
 Each unit is priced at 1/10th of the CNX Bank Index
 Minimum Lot-size for Real-Time Cash Creation / Redemption with the Fund is
10,000 units

NSE symbol BANKBEES
Series EQ
Reuters code BBES.NS
Face value Rs. 10
Bloomberg BBEES:IN
Entry/Exit Load NIL
64
Fund Performance History (%)
65
4. PSU Bank BeES - (An Open-ended Equity Exchange Traded Scheme)
Investment Objective: The investment objective of PSU Bank BeES is to provide returns
that, before expenses, closely correspond to the total returns of the securities as represented
by the CNX PSU Bank Index.
PSU Bank BeES

 Allotment Date : October 25, 2007
 Benchmark Index : CNX PSU Bank
 Pricing (Per Unit) : 1/10th of Index
 Minimum Lot : One unit/share
NSE symbol PSUBNKBEES
Reuters code PSUB.NS
Face value Rs. 10
Bloomberg PSUBBE:INEQUITY
Entry/Exit Load NIL
66
Fund Performance:
*CNX PSU Bank Index.
67
5. KOTAKPSUBK
AMC: Kotak Mahindra Asset Management Company Ltd.
Objective:
The investment objective of the scheme is to provide returns that closely correspond to
the total returns of CNX PSU Bank Index, subject to tracking errors.
Launch date: October 29, 2007
Scheme: Open-ended, gold exchange traded fund

The minimum investment amount is Rs 10,000 and in multiples of RS. 1000.
ISIN code INF373I01023

NSE symbol KOTAKPSUBK
Reuters code
Face value Rs. 10
Bloomberg KOPSUB:IN
Total Expense Ratio
Tracking Error
Entry NIL
Exit Load NIL
NAV returns
Duration 1 week 1 month 6 month 9 month 1 year
Percentage -4.57 21.08 -34.04 - -
68
6. KOTAK SENSEX ETF

AMC: Kotak Mahindra Asset Management Company Ltd.
Objective:
The investment objective of the scheme is to provide returns before expenses that closely
correspond to the total returns of the BSE SENSEX subject to tracking errors. Exchange
traded fund focusing on investing in the stocks that comprise the BSE SENSEX
Launch date: May 07, 2008

The minimum investment amount is Rs 10,000 and in multiples of RS. 1000.
ISIN code
BSE symbol KTKSENSEX
Reuters code
Face value Rs. 10
Bloomberg KOTSS:IN
Total Expense Ratio

Tracking Error
Entry 1% p.a
Exit Load NIL
NAV returns
Percentage -3.28 6.42 - - -
69
7. QNIFTY
Quantum Index Fund (QIF) - An Open Ended Exchange Traded Fund.
Objective:
The investment objective of the Quantum Index Fund is to provide returns that, before
expenses, closely correspond to the returns provided by the S & P CNX Nifty Index.
QIF tracks the S&P CNX NIFTY Index commonly known as NIFTY. 50 Indian stocks
across 21 sectors are represented in the NIFTY. Therefore, investors in QIF will have a
diversified exposure across stocks and sectors.
Launch date: July 18, 2008
Benchmark Index: S&P CNX NIFTY

Pricing (Per Unit): 1/10th of Index
Minimum Lot: One unit/share
ISIN code INF082J01028
NSE symbol QNIFTY
Reuters code N.A
Face value Rs. 10
Bloomberg QINDEX:IN
Total Expense Ratio 0.75%
Tracking Error
Entry 0.25% p.a
Exit Load NIL
70
8. RELBANK (Reliance Banking Exchange Traded Fund)
AMC: Reliance Capital Asset Management Ltd.
Objective:
The investment objective of Reliance Banking Exchange Traded Fund (RBETF) is to

provide returns that, before expenses, closely correspond to the total returns of the
securities as represented by the CNX Bank Index. However, the performance of Scheme
may differ from that of the underlying index due to tracking error.
Launch date: May 12, 2008
Scheme: Open-ended, exchange traded fund

Minimum investment amount: Rs 5,000
NSE symbol RELBANK
Reuters code
Face value Rs. 10
Bloomberg
Total Expense Ratio
Entry 2.25%
Exit Load NIL
NAV returns
Percentage -14.34 4.71 - - -
71
Gold ETF
Gold is one of the most valuable and universally accepted metals; its price movements are
keenly watched in global economics. Even today, after gold has been officially delinked from
currencies, it has a huge role to play in the global economy.
Widely considered to be an asset whose intrinsic value and purchasing power will not be
widely subjected to the vagaries of inflation. It is widely respected as a store of value. During
times of high inflation or depreciating currencies, people have turned to gold.
The economic factors which influence the value of gold is often contrarian to their impact on
other financial assets. Gold is used as an effective asset-allocation and diversification tool -
For instance, there is low to negative correlation between returns on gold and those on stock
markets.
Gold moves in a different direction…
72
…and is a hedge against inflation (Over the long term, Gold

overshadows inflation)
73
…and holds true in uncertain times.

Society dislikes uncertainty. During times of national crises, emergencies, wars or
geopolitical strife, there is a rush to transfer assets into gold.
74
Gold ETF
 Gold ETFs are investment vehicles that track the price of gold. The underlying
asset for the ETF is physical gold. So, the value of the ETF unit depends on
the underlying value of the gold.
 Gold ETFs are designed to provide returns that, before expenses, closely
correspond to the returns provided by domestic price of Gold if held
physically.
 It offers investors a smart way of investing in the gold bullion without the
necessity of actually physically holding gold and storing it. It is buying gold in
Demat form.
 Since the fund is passively managed, the expenses are relatively lower, which
translates to better returns for the investors.
 As it is listed on a stock exchange, any investor can buy it through his broker.
Gold ETF is an Exchange Traded Mutual Fund Unit listed and traded on a stock exchange.
Gold is the underlying asset for the units of that fund. Every Gold ETF Unit represents a
definite quantity of pure gold and the price of that Unit of Gold ETF moves with the price of
the actual gold metal being traded in the spot market or any metal exchange.
A fund house coming up with a Gold ETF appoints Authorized Participants who initially buy
the units of Gold ETF from the mutual fund by exchanging actual pure gold for the units of
Gold ETF. These Authorized Participants engage in secondary market trading of the Gold
ETF Units through the Stock Exchange, where investors can buy or sell gold units on
payment, for quantities as specified by the mutual fund in its offer document. The
underlying gold is kept with the fund house in the form of physical gold or gold receipt
which gives the right of ownership. Authorized participants can go back to the mutual fund
house to redeem the gold ETF Units and can demand equivalent value of actual pure gold at
any time.
India is the largest consumer of gold consuming nearly one third of total end use
consumption. India has been a sink for precious metals and gold purchases in India are
primarily driven by traditional jewellery demand. The outlook for Gold ETFs has become an
75
important factor to analyze their impact on the demand profile from India. Incremental
demand from ETFs can create a strong investment avenue for Indian gold investors.
The gold demand from India is dependent on both the gold prices and the price volatility.
The jewellery demand has been low when the price volatility is high. The primary demand
for jewellery is driven by customs and traditions so buyers try to time the markets and buy
their gold requirement when prices dip. On a broader platform the demand for gold and
gold jewellery is related to international prices, currency fluctuations, agricultural
production, and the number of marriages. The trend in investment in gold is evident from
the adjacent graph. The Net Retail Investment has shown an increasing trend with prices
rising to multi-year high levels. The retail investments have increased due to interest shown
by investors in profiting from higher gold price.
Large numbers of banks have come up with gold coins and buyers have flocked in to fulfill
their future jewellery needs. Gold investment demand in India is increasing both in tonnage
and currency value terms. Gold circulates within the system and roughly 30% of gold
jewellery fabrication is from recycled pieces. The jewellery demand in India has been driven
by other than social reasons also. One of the drives is the jewellery demand for investment
purpose. The Indian gold buyers have invariable kept gold in the form of jewellery to profit
from the price rise. The absence of hallmarked bars and other investment vehicles have
increased the demand for jewellery for investment. The increased investment in medals and
imitations coins by the Indian investors is evident of this phenomenon. Medals and
imitation coin demand has shown increase in 2006 also based on estimates. This healthy
trend in the investment demand augurs well for the Gold ETFs.
76
In general the medals and coins are later used to convert into jewellery and this is where the
efficiency of Gold ETFs comes into doubt. The Gold ETFs cannot provide physical gold to
the investors.
This is a very important bottleneck specifically in India. The Gold ETFs in other countries
have been very successful in attracting reluctant investors to the bullion markets. But the
reluctance of those investors was subjected to the problems in holding the yellow metal. The
investors wanted a way out for large storage cost and safety of their investment from theft.
The Indian Scenario is pretty much different. Indian investor buys gold in order to take
benefit of the price appreciation and at the same time to use the gold for their social
commitments.
Performance of two of the largest Gold ETFs i.e. Streettracks gold shares and Gold
bullion securities listed on NYSE, Singapore Exchange and LSE, Euronext Paris respectively
can been seen by the increase in their gold reserves. All the ETFs combined have tenth
largest reserves in the world. The higher the price goes there is higher probability of
redemption from these funds. If this progress is replicated in India then the Indian Gold
ETF can influence the prices in a much broader manner. However this performance has very
77
little probability of being repeated in the Indian markets as the main buying in expected to
come from tier-I Indian cities.
78
Why should an investor invest in Gold ETF?
 No worry on adulteration
 Gold provides diversification to the portfolio
 Gold is considered as a Global Asset Class
 Gold is used as a Hedge against Inflation
 Gold is considered to be less volatile compared to equities
 Held in Electronic Form
 Store of value
 Extremely Liquid
Advantages of Investing in Gold ETFs:
 Potentially cheaper to have price exposure to gold price as compared to other

available avenues
 Quick and convenient dealing through demat account
 No storage and security issue for investors
 Transparent pricing
 Taxation of Mutual Fund
 Can be traded on stock exchange like buying / selling a stock
 Ideal for retail investor as minimum lot size to trade is one unit on secondary
market
 NAV of a unit will track price of approximately ½ or 1 gram of gold
Taxation advantage in Gold ETF is being viewed as a major investment option. Physical
holding of gold attracts wealth tax on holding above Rs.15, 00,000. The Gold ETFs however
are exempt for this incremental tax treatment. If you hold physical gold for say 25lacs you
have to pay Rs. 10,000 as tax. The tax treatment on funds is also different. For physical gold
one has to pay short term capital gains tax on capital gains in less than three years which is
the marginal tax rate plus the surcharge. The long term capital gains tax is applicable for
capital gains after three years and tax rate is 20% with indexation benefits. The Gold ETFs
have an advantage over the physical metal in the sense that it comes under the SEBI
79
(Mutual Funds) Regulations, 1993. Gold ETFs are financial assets. Therefore the tax
treatment will involve short-term tax rate of 10% for capital gains before one year. The long
term capital gains remain zero.
Comparison of Gold ETF with Physical Gold
80
Risks Involved
 Mutual Funds and Securities investments are subject to market risks and
there can be no assurance or guarantee that the objective of the scheme will
be achieved.
 As with any investment in securities, the NAV (Net Asset Value) of the units
issued under the ETF can go up or down depending on the factors and forces
affecting the Bullion Market, Capital Market and Money Market.
 The Past Performance of the fund house issuing the ETF should not be
construed for the future performance of the fund. It might not provide a basis
of comparison with other investments.
 The name of the Gold ETF doesn’t indicate the quality of the scheme or its
future prospects and the returns. Investors should study the terms of offer
carefully and consult their investment advisor before investing the scheme.
 ETFs are a new concept in India compared to other parts of the world.
 The sponsor of the mutual fund is not responsible or liable for any loss or
shortfall resulting from the operation of the fund beyond the initial
contribution made by it of an amount of Rs 1 Lac towards setting up of the
Mutual Fund.
 Investors are not offered any guaranteed or assured returns.
 The scheme NAV will react to the Bullion Market movements. The investor
could lose money over short periods due to fluctuation in the schemes NAV in
response to factors such as economic and political developments, changes in
interest rates and perceived trends in Bullion market movements and over
longer periods during market downturns.
81
9. GOLD BEES : (Gold Benchmark Exchange Traded Scheme)
All data as of June 30, 2008

Investment Objective: The investment objective of Gold Benchmark Exchange
Traded Scheme (Gold BeES) is to provide returns that, before expenses, closely
correspond to the returns provided by domestic price of gold through physical gold.
Gold BeES:
 Allotment Date : March 08, 2007
 Benchmark Index : Domestic Price of Gold
 NAV : Rs. 1,292.6601
 Pricing (Per Unit) : Approximately 1 gram of Gold
 Minimum Lot : 1 Unit
NSE symbol GOLDBEES
Reuters code GBES.NS
Face value Rs. 10
Bloomberg GBEES:INEQUITY
Entry/Exit Load NIL
82
10. UTI GOLDSHARE
UTI-Gold ETF is an exchange traded fund, passively tracks the performance of Gold Bullion.
The face value of UTI Goldshare is Rs 100/-
ETFs are bought/sold in two markets:
 The primary market where large players also known as authorized

participants swap creation units for gold in physical form or in the form of
cash.
 The secondary markets where the ETFs are traded like units of common
securities on the stock exchange(s) during the trading hours.
Objective:
The objective of the scheme is to provide investment returns that, before expenses, closely
correspond to the performance and yield of the gold prices or gold related instruments.
UTI Goldshare:
 UTI Gold-ETF is an open-ended fund listed on National Stock Exchange in the form
of Exchange Traded Fund (ETF) tracking the Gold bullion.
 UTI Gold-ETF is a passively managed open ended exchange traded fund designed to
track the performance and yield of the gold prices or gold related instruments.
 Each UTI Goldshare unit represents an undivided ownership interest in the Scheme.
 Minimum trading lot for UTI Goldshare units in the markets is 1 unit.
Investment Pattern
The investment policies of the scheme are as per SEBI (Mutual Fund) Regulations, 1996 and
within the following guideline. Under normal circumstances, the investment range would be
as follows:
83
* As mentioned by SEBI from time to time
As noted previsouly, gold ETFs were launched with much fanfare in India, starting with the
Benchmark Gold ETF (GOLDBEES.NS) and followed by UTI (GOLDSHARE.NS).
Unfortunately, they have gone in only one direction since: UTIGOL:IN (Bloomberg code)
Source: NSE India
Gold in US dollars has not weakened much, but the strong rupee has wiped out any upside
in domestic gold prices. No wonder that investor response has been muted so far: UTI MF
expects gradual gold fund demand.
Gold-traded mutual funds, though slow in taking-off, are expected to pick up in the next
two-three years as the yellow metal has proved to be the only safe investment, offering a 9%
return consistently in the long-term.
84
11. KOTAKGOLD
Kotak Mutual Fund has emerged as the third fund house, after Benchmark and UTI, to
launch a Gold Exchange Traded Fund.
Name of fund: Kotak Gold Exchange Traded Fund

Objective: Generate returns that should be in line with the returns on investment in
physical gold.
Asset allocation: Physical Gold: 90% - 100% / Debt and money market securities: 0%-
10%
NSE symbol KOTAKGOLD
Face value Rs. 100
Bloomberg KOGOLD:IN
Entry/Exit Load NIL
85
12. RELGOLD
AMC: Reliance Capital Asset Management Ltd.
Objective: The investment objective is to seek to provide returns that closely correspond to
returns provided by price of gold through investment in physical Gold (and Gold related
securities as permitted by Regulators from time to time). However, the performance of the
scheme may differ from that of the domestic prices of Gold due to expenses and or other
related factors.
Launch date: November 21, 2007


NSE symbol RELGOLD
Reuters code RELGOLD.NS
Face value Rs. 100
Bloomberg REGOLD:IN
Entry/Exit Load NIL
NAV returns

Percentage -0.16 -0.05 7.76 - -
86
15. QUANTUM GOLD EXCHANGE TRADED FUND
AMC: Quantum Asset Management Co. Pvt. Ltd.
Objective:
The investment objective of the scheme is to generate returns that are in line with the
performance of gold and gold related instruments, subject to tracking errors. QGF is
designed to provide returns that, before expenses, closely correspond to the returns
provided by Gold.
Each QGF unit is approximately equal to ½ gram of gold. Thus, even at the current prices of
approximately Rs. 1,200 per gram, an investor can buy gold in unit form for as low as Rs.
600. Investments by the fund will be made in physical gold which would be stored by the
custodian and also accompany adequate insurance cover.
Launch date: February 22, 2008

Minimum investment amount: Rs 5,000/ and in multiples of Rs 1,000/- thereafter.
ISIN code INF082J01010
Face value Rs. 100
Bloomberg QTGOLD:IN
Entry NIL
Exit Load 0.50%
NAV returns
Percentage -0.16 -0.05 - - -
87
ROAD BLOCKS IN INDIAN MARKET:
Till 2006-07 we had only 6 ETFs in Indian market based on Nifty and banks now we have 15
ETF available with us and this indicate towards the prosperous future of ETFs in India.
ETFs are new in Indian Market and have no track record of their performances just because
of this new investors are not interested in taking risk of investing in new investment
options, though ETFs are not new for the global world. Globally ETFs have performed very
well during the upside of the market, whereas during recession and downside movements of
market even most of the ETFs have failed in giving desired results to the investors though
their returns are better in comparison of stocks market. 2007-08 was the year of gold ETFs
in India most of the gold ETFs came to the Indian market during third and fourth quarter of
the financial year 2007-08. Unfortunately during this year US and other big economies were
badly suffered because of subprime crisis and after that depreciation of US$ then rise in the
oil prices, high inflation which has its impact on India economy also and ultimately affected
all the ETFs available in the market. Despite sluggish performance of equity market gold
ETFs were able to perform better than other investment instruments.
Only road blocks that I see in Indian market is high volatility, no track record and complex
economic rules and regulation of SEBI and RBI. According to my analysis what I see is
Indian market has huge potential and will be open to welcome more ETFs as soon as this
negative phase recovers.
One more ETF that will track the performance of the silver is in the pipeline and waiting for
the approval form SEBI. ETFs have emerged as a new face of investment globally and we are
almost ready to grab this opportunity.
88
MARKET PERFORMANCE:
Performance by Market Cap
All market cap ranges saw positive performance for the month, with Small Cap and Mid Cap
leading the way.
FIGURE 10: PERFORMANCE BY MARKET CAP
CATEGORY MAY RETURN (%) 2008 YTD RETURN (%)

SMALL CAP 4.4 -1.0
MID CAP 4.5 0.9
LARGE CAP 1.8 -3.2
TOTAL MARKET 2.1 -3.0
Performance is that of DJ Wilshire Indexes. Total Market is represented by the DJ Wilshire 5000 Index.
89
PERFORMANCE BY STYLE
Only Large Cap Value declined for the month.
FIGURE 11: PERFORMANCE BY STYLE

SMALL CAP VALUE 3.3 0.0
SMALL CAP GROWTH 5.6 -1.8
MID CAP VALUE 3.4 0.3
MID CAP GROWTH 5.4 1.2
LARGE CAP VALUE -0.5 -5.5
LARGE CAP GROWTH 3.8 -1.1
Performance is that of DJ Wilshire Indexes.
90
PERFORMANCE BY SECTOR
Nine of the ten sectors rose with only Financials suffering losses in May.
Figure 12: Performance by Sector

ENERGY 3.5 6.5
MATERIALS 4.8 7.2
INDUSTRIALS 1.0 -1.6
CONSUMER DISCRETIONARY 0.6 -1.3
91
CONSUMER STAPLES 1.4 -1.1
HEALTH CARE 2.0
-8.3
FINANCIALS
-6.1 -13.9
INFORMATION TECHNOLOGY 5.6

-4.2
TELECOMMUNICATION SERVICES 3.4

-6.5
UTILITIES 3.4
-2.0
Performance is that of S&P 500 GICS Sector Indexes.
92
PERFORMANCE OF INDIAN ETFs AND THEIR FUTURE

PROSPECTUS:
The Maximum Returns (M O N D A Y , A U G U S T 1 1 , 2 0 0 8 )

When analyzed category wise, the maximum returns were delivered by the Gold ETFs, a
huge 25% return per annum.
Performance of different investment options:
Annual Return
Gold ETF 25.00%
S&P CNX Nifty 12.63%
Sensex 12.46
Equity FMCG 11.72
Equity banking 11.49%
BSE Small Cap 10.73%
Sectoral fund categories (Technology and Auto) have delivered negative returns to the tune
of 15.38% and 14.88% respectively.
A careful analysis of the performance of the existing 34 fund houses reveals that there are
schemes, which have offered returns higher than stock markets despite the market mayhem.
Interestingly, most of the outperformers are actually equity-based funds. And analysts are
hopeful about other equity-based funds will also bounce back soon.
Yet, the present market volatility cannot be ignored. Combined with a global economic
slowdown, fears of a US recession, deteriorating domestic fiscal scenario and of course, over
dependence on foreign fund flow, market pundits continue to point toward uncertain times,
and NAVs of major funds have crashed nearly 25-30%. Avers Ashok Jainani, VP, KSL, “The
markets have turned volatile and reacted sharply to the crisis in global financial markets
over the last three months… The NAVs of equity funds have dropped to reflect the
turbulence in equity markets worldwide.”
93
Performance History of BeES (as on 30th May, 2008)
6 Mths 1 Yr 3 Yrs 5 Yrs Since Inception
Nifty BeES (15.41)% 13.73% 34.58% 39.36% 28.65%
Junior BeES (28.28)% 2.06% 23.53% 38.47% 40.27%
Bank BeES (29.51)% 5.05% 25.08% - 28.45%
PSU Bank BeES (29.54)% - - - (18.84)%
Gold BeES 13.29% 23.73% - - 17.33%
Liquid BeES * 7.37% 6.78% 6.22% - 5.32%
* For Lquid BeES returns are based on Gross Dividend P.U.(Inclusive of Distribution Tax)
declared by the Fund till May 30, 2008. Actual dividend in the hands of each investor will
vary based on category and rate of dividend distribution tax applicable thereon. Returns for
all the period are annualized. Returns for less than one year are absolute and more than one
year are compounded annualized.
Performance of Gold ETF: (As on 31 – July - 2008)

Those have invested in India’s Gold ETFs are a happy lot these days, as
returns from these funds have performed much better than several stocks
in the country’s stock exchanges.
Analysts said Gold ETFs are the only product in the mutual funds
category that has outperformed Sensex return as all other thematic funds.
Data available from the Bombay Stock Exchange show that Gold ETFs have given a return of
5.22% in the last one-month (July 2008), while the 30-share Sensex of BSE during the same
period has given only 4% return.
Currently, there are three fund houses that are offering Gold ETFs. While UTI MF and
Kotak MFs' Gold ETF has given 5.23% return, the Gold ETF from Benchmark Asset
Management stable has given a return of 5.21%.
Gold ETF is a new investment option that is likely to create a wave, challenging the best
known investment options like mutual funds and equity markets.
94
Glittering gold has overshadowed all other asset classes this year and shimmering to glory
are the Gold Exchange-Traded Funds (ETFs) that came into the market only last year and
mirror gold returns. But it has not yet found many takers as compared to physical gold
Gold ETFs were first launched in March 2007 and completed a year of phenomenal rally
thanks to mounting gold prices. As these funds trade on the underlined price of gold, they
have given average returns as high as 24% in the last one year with the precious metal
appreciating from 10,000 levels for 10 grams of gold to 13,500 levels this year. As the
demand-supply mismatch continues, the prices are expected to rise.
India is one of the largest consumers of gold. Nearly 800 tonne of gold is imported every
year. Indians account for 23% of the world’s total annual demand for gold. While
conventional investment options like jewellery, gold bars and coins still exist, Gold ETFs are
another effective way to invest in the yellow metal. But while demand of gold has risen 15%
YoY, gold ETFs have still found few takers even after much fanfare.
Dharmesh Sodah, Director, World Gold Council said, its a new product which is being
introduced into the market. A substantial amount of work still needs to be done in terms of
getting more awareness. I am sure consumers would see the merits and look at Gold ETFs
as a very attractive investment option.
"There needs to be a remarkable change in the mindset of investors that I can also hold gold
in the paper form. And that, we believe will take a couple of years," said Lakshmi Iyer, VP
and Head Product, Kotak Mutual Fund.
Experts say if you are looking at gold as an asset class purely for investment, Gold ETFs
prove to be a much more investor friendly option and are expected to address issues of
higher prices of physical gold, purity and cost of insurance.
The advantage of gold ETF firstly is easy buying and selling. Typically, if you want to buy
physical gold, you have to go somewhere else. The second advantage is storing. If you buy
physical gold, you have to store in your house. Thirdly, you can do transactions on
denomination in Gold ETF because here you can buy even one unit. While in physical gold
buying1 gram and adding them is painful because you have to melt it to make a bigger coin
or bar and that takes away some value out of it, said Rajan Mehta, ED, Benchmark MF.
However, trading gold ETF units differ in a few ways from trading company’s shares. Since
it’s a commodities transaction, Securities Transaction Tax (STT) is not applicable. Also, gold
is held by an investor in the dematerialized form or in units. Hence, no wealth tax is levied
95
which is applicable when physical gold exceed Rs 15 lakh. However, gold ETF is a non-
equity scheme and would attract a Dividend Distribution Tax (DTT). As per the current
norms, a DTT of 14% of the dividend would be applicable for individuals and 22.4% for
corporate and institutional investors.
"Right now, under the legislation, gold is considered under the non-equity category. So, debt
fund taxation would be applicable in them. For physical gold, the short-term capital gains
tax will be applicable till three years of holding. But in gold ETF, for short-term capital gains
tax to be applicable, the holding period is only 1 year. So, the incidence of taxation in gold
ETF is much lower," added Lakshmi Iyer.
96
Suggestions from Institutional Investors:
Sometimes you are confident that an industry group is poised for a rebound, but you are not
sure which stocks to buy to best take advantage of that rebound. There is always the risk
that a company-specific problem will prevent a particular stock from participating as its
industry group rises.
One way to avoid that risk is by buying a broad basket of stocks from across the industry,
and one of the most efficient ways to do that is with an exchange-traded fund.
Because ETFs are not constantly buying and selling the underlying shares, they rarely
generate capital gains or losses for the ETF holders. Also, most ETFs passively invest in an
index or a specified group of stocks, and so they have a very low fee structure.
Of course, there are disadvantages to ETFs that must be considered. Because it is a stock
traded on an exchange, you must pay a brokerage commission every time you buy or sell an
ETF. Also, thin trading volumes in some ETFs can lead to wide bid/ask spreads and
increased transaction costs. As a result, investors who want to actively trade in and out of
positions might be better off with a no-load mutual fund or some other vehicle.
Barclays is the largest provider in the ETF marketplace, and its ETFs are among the most
actively traded. They are also well constructed to accurately mimic the performance of the
underlying index or industry group.
iShares S&P GSTI Networking Index. The iShares S&P GSTI Networking Index is a good
proxy for the telecom equipment industry. The inclusion of Qualcomm and Research in
Motion have led to better performance than a pure equipment index, but it also includes
Motorola, Tellabs, JDS Uniphase, Juniper Networks, Corning and Cisco Systems among its
top 10 holdings.
The telecom equipment industry suffered from an enormous overcapacity at the beginning
of the decade, which led to a painful and prolonged retrenchment. But with industry
capacity normalizing and demand for bandwidth inexorably rising, only the timing of the
industry's rebound is in question.
97
iShares Dow Jones US Telecommunications. The telecommunications service providers
have also been in turmoil as wireless and cable-based systems compete with the traditional
telephone landline. But turmoil creates opportunity, and many of the telecom companies
have very strong franchises. The iShares Telecom ETF is somewhat dominated by AT&T and
Verizon Communications, with 38 per cent of the index, but it still provides sufficient
diversification across the sector.
iShares S&P GSTI Semiconductor Index. The semiconductor industry is notoriously cyclical
and, if anything, has become more so in recent years. It could be nearing the bottom of a
major trough, as technology spending is likely to increase in the coming years. The iShares
Semiconductor Index provides good coverage across both the chip makers and their
suppliers, from Intel and Texas Instruments to Applied Materials and KLA-Tencor.
Three that look particularly interesting are the iShares Dow Jones U.S. Financial Sector
Index, which holds many of the major national banks and leading investment banks; the
iShares Dow Jones US Broker-Dealers Index, which is more focused on the investment
banks and brokerage houses; and the iShares Dow Jones US Regional Banks Index Fund,
which, as the name suggests, gives you exposure to the smaller, more localized banks.
98
10 BEST BY ETFs:
Many investors prefer more diversified, packaged products, like exchange-traded funds and
mutual funds, over individual stocks. When it comes to ETFs there are now hundreds to
choose from. Forbes editors polled the smartest investment minds for their top picks for
2008. Here are ten worth considering.
1. Fidelity China Region (FHKCX)

Focus: Chinese equities
12-Month Return: 43.2%
2. iShares S&P Global Telecommunications (nyse: IXP)

Focus: Global telecom stocks
3. ING Global Real Estate (IGLAX)

Focus: Global real estate companies & REITs
12-Month Return: -6.9%
4. WisdomTree DEFA (nyse: DWM)

Focus: Dividend stocks, Europe, Asia and Australia
5. Health Shares Diagnostic (nyse: HHD)

Focus: ETF covering pharma, healthcare service, life sciences and biotech
Three-Month Return: 4.8%
99
6. StreetTracks Gold Shares (nyse: GLD)

Focus: ETF focusing on gold stocks
7. Spectra N (SPECX)
Focus: Mutual fund focusing on "high unit volume growth and positive life cycle"
stocks
8. Ultra QQQ ProShares (amex: QLD)

Focus: ETF which doubles the performance of the Nasdaq 100
9. Rydex Sector Rotation (RYSRX)

Focus: Quant fund which invests in top industries ranked by momentum
10.New Ireleand Fund (nyse: IRL)

Focus: Closed end fund investing in Irish securities
12-Month Return: -18.2%
100
LIMITATIONS:
 “Exchange Traded Funds” is a very wide topic in itself and time period was
not sufficient to understand terms and conditions of such a complex
instrument. This report is based on the limited information gathered from
magazines, newspapers and internet.
 As far as Indian ETFs are concerned no track record is there and market is
also underdeveloped and hence there is unavailability of sufficient
information.
 Risk factor is crucial part of any investment decision of the investor but
this report doesn’t speak in terms of value of risk in different Exchange
Traded Funds available in the market.
 Charts of returns/performances are based on the historical data and
cannot ensure the same returns in future.
101
Appendices
102
PERFORMANCE TABLE
By Issuer:
National Stock Exchange (NSX) data on the performance of ETFs (April

2008)
Net Cash Flow Notional Trading
Assets ($Mil)
($Mil) Vol ($Mil)
By Issuer 7-Apr 8-Apr YTD '08 8-Apr YTD '08 8-Apr
BGI/iShares 278,910 321,169 1,585 6,916 1,708,550 346,587
SSgA 103,311 141,434 -12,741 -10,145 3,679,225 797,006
Vanguard 29,272 47,920 7,303 1,387 48,588 10,073
Invesco/PowerShares 29,981 38,626 970 276 663,972 125,793
ProFunds 4,775 16,818 8,059 2,007 686,569 174,063
Bank of NY 9,136 8,626 -1,345 -360 65,165 17,485
Merrill (HOLDRs) 8,873 6,732 -233 -1,126 237,813 58,457
Rydex 4,862 5,993 481 -4 17,007 4,678
Van Eck 743 5,444 1,943 212 26,950 5,803
Wisdom Tree 3,685 4,641 280 145 5,732 1,089
Claymore 529 2,002 179 124 3,529 720

Ameristock/Victoria
Bay 1,010 1,224 -174 -58 41,868 14,863
First Trust 618 981 52 53 950 221
MacroShares 42 340 280 174 629 484
X-Shares 71 231 16 15 290 54
Goldman Sachs 0 203 0 0 82 16
Fidelity 119 104 -1 18 747 443
Bear Stearns 0 50 0 0 0 0
103
Northern Trust 0 31 31 31 12 12
Greenhaven 0 30 30 0 84 19
FocusShares 0 24 0 0 51 3
SPA 0 17 4 0 28 10
RevenueShares 0 15 15 0 23 13
Ziegler 4 5 -2 0 8 1
ETF Total 475,942 602,662 6,732 -334 7,187,874 1,557,894
Category wise:

Assets ($Mil)
($Mil) Vol ($Mil)
By Category 7-Apr 8-Apr YTD '08 8-Apr YTD '08 8-Apr
Domestic Equity
304,277 353,487 -4,685 -5,347 6,129,238 1,317,410
Global/International
Equity 130,480 174,202 1,850 3,841 817,223 174,224
Fixed Income 23,397 42,090 7,046 2,076 58,737 14,567
Commodity/Currency 19,891 39,018 4,261 -534 192,497 54,115
Total 478,046 608,797 8,473 36 7,197,695 1,560,316
104
Top 10 ETFs by Size:

Assets ($Mil)
($Mil) Vol ($Mil)
Top 10 ETFs by Size 7-Apr 8-Apr YTD '08 8-Apr YTD '08 8-Apr
SPDR Index 500 60,036 75,121 -19,137 -8,491 2,733,321 584,966
iShares MSCI-EAFE 44,619 47,363 -2,383 -488 84,041 18,480

iShares MSCI-
Emerging Mkts 16,159 26,285 -1,568 274 268,728 47,894
iShares S&P 500 19,506 18,994 1,790 1,721 36,705 8,651
PowerShares QQQ 17,126 17,727 -1,799 -585 633,166 119,077
SPDR Equity Gold 10,735 16,247 -1,339 -1,780 95,956 24,189

iShares Russell 1000
Gr 9,155 13,447 -1,271 -81 17,705 3,434
iShares Russell 2000 10,252 10,485 546 -273 539,248 99,015

Vanguard MSCI Total
Market 8,102 10,422 713 116 7,463 1,178
iShares Lehman 1-3 Yr
Treas 5,893 9,279 -387 -193 7,523 1,741
105
TOP US ETFS BY ASSETS (AS OF MAY 31, 2008)
ASSETS MARKET SHARE

ETF TICKER
(MM) (%)
S&P 500 SPDR SPY $77,079 12.6
ISHARES MSCI EAFE EFA $47,683 7.8
EEM $27,347 4.5

ISHARES MSCI EM
NASDAQ-100 INDEX TRACKING QQQQ $17,581 2.9
STOCK
SPDR GOLD SHARES GLD $17,000 2.8
ISHARES S&P 500 IVV $16,692 2.7
ISHARES RUSSELL 1000 GROWTH IWF $14,033 2.3
VANGUARD TOTAL STOCK VTI $10,790 1.8

MARKET
ISHARES RUSSELL 2000 IWM $10,073 1.6
ISHARES MSCI-BRAZIL EWZ $9,830 1.6
106
ETF Short Interest
Aggregate short interest in the US ETF market was little changed at approximately 21% of
total assets.
Short interest declined in Small Cap, down 5.6%. Energy short interest rose 17.2% to 57.8%.
FIGURE 8: ETF SHORT INTEREST BY ASSET CLASS (AS OF MAY 15, 2008)
SHORT MONTHLY
CATEGORY ASSETS (MM) SHORT (MM)
INTEREST (%) CHANGE (%)
BROAD $16,347 $1,453 8.9 -0.1

COMMODITY $32,038 $2,907 9.1 1.4
CURRENCY $5,009 $453 9.0 -2.4
DIVIDEND/FUNDAMENTAL $13,612 $159 1.2 0.2
FIXED INCOME $43,035 $1,993 4.6 -1.4
GLOBAL $5,715 $245 4.3 1.2
INTERNATIONAL $165,997 $14,912 9.0 -0.3
INVERSE/LEVERAGED $18,089 $1,014 5.6 0.7
SECTOR $61,993 $23,981 38.7 5.0
SIZE $170,163 $81,108 47.7 4.1
SPECIALTY $10,423 $279 2.7 -0.2
STYLE $69,322 $2,141 3.1 -0.2
ASSETS SHORT SHORT MONTHLY

SUB-CATEGORY
(MM) (MM) INTEREST (%) CHANGE (%)
BROAD $16,347 $1,453 8.9 -0.1

COMMODITY $32,038 $2,907 9.1 1.4
107
SUB-CATEGORY
CURRENCY $5,009 $453 9.0 -2.4

DIVIDEND/FUNDAMENTAL $13,612 $159 1.2 0.2
FIXED INCOME $43,035 $1,993 4.6 -1.4
GLOBAL $5,715 $245 4.3 1.2
INTERNATIONAL - DEVELOPED $93,707 $3,660 3.9 -0.3
INTERNATIONAL - EMERGING $72,290 $11,252 15.6 -0.6
INVERSE/LEVERAGED $18,089 $1,014 5.6 0.7
SECTOR - CONSUMER DISCRETIONARY $2,177 $1,236 56.8 14.0
SECTOR - CONSUMER STAPLES $3,505 $1,002 28.6 -0.9
SECTOR – ENERGY $11,960 $6,917 57.8 17.2
SECTOR – FINANCIALS $9,732 $5,674 58.3 9.4
SECTOR - HEALTH CARE $5,215 $414 7.9 0.4
SECTOR – INDUSTRIALS $3,802 $1,260 33.1 -10.4
SECTOR – MATERIAL $4,914 $1,665 33.9 0.6
SECTOR – REIT $7,874 $3,709 47.1 8.4
SECTOR – TECHNOLOGY $9,236 $1,535 16.6 1.1
SECTOR – UTILITIES $3,578 $569 15.9 -3.3
SIZE - LARGE CAP $132,467 $58,655 44.3 4.5
SIZE - MICRO CAP $396 $100 25.2 -4.3
SIZE - MID CAP $20,057 $2,516 12.5 2.3
SIZE - SMALL CAP $17,243 $19,837 115.0 -5.6
SPECIALTY – DOMESTIC $3,786 $78 2.1 -0.3
SPECIALTY - INTERNATIONAL $6,637 $200 3.0 -0.2
STYLE - ALLCAP GROWTH $364 $12 3.2 -0.6
STYLE - ALLCAP VALUE $619 $12 2.0 -1.7
108
SUB-CATEGORY
STYLE - LARGE GROWTH $25,696 $283 1.1 0.2
STYLE - LARGE VALUE $16,434 $263 1.6 -0.3
STYLE - MID GROWTH $7,084 $180 2.5 1.0
STYLE - MID VALUE $6,285 $68 1.1 0.4
STYLE - SMALL GROWTH $5,990 $731 12.2 -3.9
STYLE - SMALL VALUE $6,850 $592 8.6 -1.2
109
COMPARISON TABLE OF INDIAN ETFS
ETF Report as on November 24, 2007

NAV (23- Expense Simple Annualised Return (%)
Nov-2007) Ratio (30-
09-07)
Scheme Name
1 Year 3 Years
Since
Inception
899.5 0.55 44.5 69.2 72.9
Bank BeES
1043.49 1 -- -- 14.5
Gold BeES
ICICI SENSEX Prudential 192.92 0.8 37.4 71.2 97.4
ETF
111.39 1 54.8 63.1 110.2
Junior BeES
1046.57 -- -- -- 53.1
Kotak Gold ETF
1000 0.7 0 0 0
Liquid BeES
567.06 0.8 40.8 64.5 75
Nifty BeES
293.74 -- -- -- 34522.1
PSU Bank BeES
Reliance Gold ETF - 1039.7 -- -- -- 15590.5
Dividend
-- -- -- -- --
Reliance Gold ETF - Growth
575.53 0.5 43.5 66.3 108.5
UTI's SUNDER
1045.28
UTI Gold ETF -- -- -- 6.6
110
References
Related websites
1. www.benchmarkfunds.com
2. www.nse-india.com
3. www.bseindia.com
4. www.bloomberg.com
5. www.reuters.com
6. www.etfconnect.com
7. www.vanguard.com
8. www.etftrends.com
9. www.ssgafunds.com
10. www.nasdaq.com
11. www.galatime.com
12. www.ranjanblog.com
13. www.quantumamc.com
14. www.rediff.com/money/2008/may/17forbes2.htm
15. finance.yahoo.com
16. www.moneycontrol.com
17. economictimes.indiatimes.com
18. www.business-standard.com
19. www.valueresearchonline.com
20. www.thehindubusinessline
21. www.tradersedgeindia.com
111

Exchange Traded Funds - A New Face of Investment in India - by Deepak

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Exchange Traded Funds - A New Face of Investment in India - by Deepak

Загружено:

Авторское право:

Доступные форматы

“Exchange Traded Funds

INSTITUTE OF MARKETING AND MANAGEMENT

Exchange Traded Funds – ‘A new face of investment in India’ is my attempt to

S.No. TABLE OF CONTENT Page No.

Gold ETF 25.00%

S&P CNX Nifty 12.63%

Equity FMCG 11.72

Equity banking 11.49%

BSE Small Cap 10.73%

1. TO STUDY THE EXCHANGE TRADED FUNDS AND THEIR CREATION

2. TO EVALUATE DIFFERENT FAMILIES OF ETFs ON THE BASIS OF

3. TO EXPLORE THE POSSIBILITIES OF ETFs IN INDIAN FINANCIAL

personal discussions with financial research analysts. Objectives of this report

were successfully executed with the help of secondary data available on

magazines, newspapers and websites.

Exchange Traded Funds

EXCHANGE TRADED FUNDS

HISTORY OF EXCHANGE TRADED FUNDS:

The Origination of the Investment Company Concept

Sources: Investment Company Institute, Closed-End Fund Association

World wide popularity of ETFs

Types of ETFs Available for Purchase

On broad basis ETFs are of Two Types:

Closed-End ETFs: Like a traditional mutual fund, a Closed-End ETF is an

Kinds of Index Exchange Traded Funds:

Assets of Exchange-Traded Funds by Type

Source: Investment Company Institute, December 2006

WHY ARE ETFs BETTER THAN MUTUAL FUNDS

Advantages of ETFs over normal open-ended mutual fund

Differences between ETFs and close-ended mutual funds

COMPARISON OF ETFs V/S OPEN ENDED FUNDS V/S CLOSE

Open Ended Closed Ended Exchange Traded

Fund Size Flexible Fixed Flexible

NAV Daily Daily Real Time

Liquidity Fund Itself Stock Market Stock Market / Fund

Provider Fund Itself

Availability Fund itself Through Exchange Through Exchange

Intra-Day Not possible Expensive Possible at low cost

THE ADVANTAGES OF EXCHANGE TRADED FUNDS:

ETFs generally are designed to correspond to the performance of their underlying

d) Buying and selling flexibility

Because they are exchange traded, ETFs can be:

e) All day tracking and trading

Because each ETF is comprised of a basket of securities, it inherently provides

h) Wide array of investment strategies:

i) Core investment—Investors can use ETFs as a core investment for their

k) Hedging—Exchange traded funds can be purchased on margin and sold short,

l) Cash management—ETFs have often been used to "equitize" cash, providing a

m) Rebalancing—Investors can adjust ETF positions at any time throughout the

HOW AN ETF COMES TO MARKET

How Do ETFs Generate Returns for Investors?

Historical S&P 500 Index Performance

UNDERSTANDING THE CREATION/REDEMPTION PROCESS

It Starts with the Authorized Participant

Net Asset Value (NAV)

The Creation Unit

Now In Reverse: The Redemption Process

Information regarding buying and selling of ETF

What are the USES OF ETFs?

Arbitrage (Cash Vs Futures) and Covered Option Strategies. : ETF's can be

What happens if constituents in the underlying index change?