ETF Doubts

POSTED BY TheZionView ON July 5, 2011 4:26 pm ONE COMMENT

I have few doubt about ETF

Basically i understand that ETF is a invested in collection of shares based on index or sector or similar kinds. These come with some value as traded in the Stock Market.It moves up and down according to the base its invested on and the trading in market.

 

My question is how does the no of units in an ETF is fixed at first?

In case of company which is in secondary market it based on base captial and they dilutions so far. In case of ETF how is this determined?

Also when does no of units for ETF increases or decreases?

What happens when there are no buyers in market to buy my ETFs,,can i give it back to company that sold me?

One reply on this article “ETF Doubts”

  1. Ramesh says:

    I will answer a few of those
    1. Price of a unit of ETF is fixed arbitrarily. So a gold ETF has a unit price equivalent to 1 gm of gold or half gm of gold. Similarly, a Nifty ETF has a unit price of 1/10th of Nifty. It can 1/5th or 1/20th. Mostly, it is based in such a way as to allow buying of a reasonable lowest price, but it is arbitrary.

    2. Both sensex and nifty are market-cap oriented indices. So the total market cap is important and not the individual stock prices (including bonuses/splits, etc). So there is no effect as such. [Dow Jones Industrial Average is probably the only index which is not structured in this way – in that a stock split alone can change the weightage. ]

    3. No of units increases or decreases based upon the net change in corpus. This is similar to MF units.

    4. I dont know the exact answer to this one. It is recommended to have ETFs which have good liquidity i.e. good amount of the particular ETF units are traded daily. Regarding Benchmark Funds (Nifty ETF), on the exchange it is traded in lots of 1 (1/10 Nifty approx), while if you want to sell it to the SMC directly, the lot size is 10,000 (approx. 1000xnifty).

    Also check out this article (courtesy subramoney.com).
    http://www.economist.com/node/18864254?fsrc=scn/fb/wl/ar/toomuchofagoodthing

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