The Chartered Accountant 699
November 2005
T H EME
Exchange Traded Funds
The latest innovations
in the Indian finan-
cial market have been
the Exchange Traded Funds
(ETFs). They are the new
species of the financial in-
struments market and have
become the buzzword in the
volatile Indian stock markets.
However, in the internation-
al markets we come across
many such ETFs such as VI-
PERS, SPIDERS, WEBS,
DIAMONDS, CUBES, etc.
VIPERS stands for Van-
guard
Index Participation
Receipts, SPDRs is Standard
& Poors Depository Receipts,
pronounced
“SPIDERS”,
CUBES is the name given for
QQQ (called so because of
its three ‘Q’s), and tracks the
technology-laden NASDAQ
100 stocks. ETFs are a novelty
only in India. Exchange Trad-
ed Funds have been in vogue
in the global financial markets,
especially the US financial
markets for a long time. An
index of their popularity can
be gauged from the fact that
about 60 per cent of the trad-
ing volumes on the American
Stock Exchange comes from
ETFs. It is only now that
these funds are catching on
in the domestic mutual fund
market in India. The first ETF
in India, “Nifty BeES (Nifty
Benchmark Exchange Traded
Scheme)” based on S&P CNX
Nifty, was launched in January
2002 by Benchmark Mutual
Fund. UTI has launched its
own ETF called SUNDERS
(S&P CNX Nifty UTI No-
tional Depository Receipts
Scheme), after Benchmark’s
BeES like Liquid BeES, Nifty
BeES, Junior Nifty BeES and
Bank BeES.
The Concept
ETFs are index tracking
open ended registered funds
or unit investment trusts that
invest in a portfolio of stocks
designed to track the perfor-
mance and dividend yield of
a specific index. They are es-
sentially mutual fund schemes
or index funds that are listed
and traded on exchanges like
stocks. Due to this they of-
fer the benefit of trading like
a stock. They are priced con-
tinually and can be bought or
sold throughout the trading
day.
An Exchange Traded
Fund, as the name itself sug-
gests; is a financial instrument,
tradable on a s