OMG!! ETF!! Exchange Traded Fund

The latest Mutual Fund data shows a decrease in SIPs. Ask any IT professional/Banker/Corporate fellow or even an uncle of mine who earns less than 20K and still manages to do SIP. And suddenly the data says people reduced their exposure to mutual fund SIP. So whats up?

Some reasons  I can think of:

1. FY 2019-20 has seen GDP growth as low as 4.5%.

2. Talk of recession.

3. Mutual Funds as such has n' t exactly done great.

Yea FY 2019-20 not great till now in terms of industrial productions, auto numbers, credit availability and inflation. Latest arrow to the heart being Inflation. But look at the index, Nifty hitting 12,128 as I write. Even if the Nifty is up and about, look at the portfolios. Its BLEEDIN!!

Many Mutual funds has given below par returns as compared to index. Why? Because general economy is not doing great. The stocks which are moving are the nifty heavy stock like RIL, Hindustan Unilever, Asian Paints, ICICI bank. And those funds which has/had YES bank, DHFL, RBL and many bleeding stocks were drastically down. 

Solution? Index ETF!

The above pic is taken from Moneycontrol. com. Its a comparison between SBI Nifty ETF (SETFNIF50) and Nifty.

Data - returns between SBI mutual Fund and ETF

Schemes % Change Asset Size NAV Returns in % (as on Dec 18, 2019) 1wk 1mth 3mth 6mth 1yr 2yr 3yr Axis Gold ETF 1 -0.1 -2.8 15.4 20.5 14.7 9.4 Invesco India Gold ETF 1 -0.1 -2.8 15.1 20.3 14.5 10.2 IDBI Gold Exchange Traded Fund 1 -0.3 -2.6 14.9 20.2 14.6 10.6 SBI - ETF Gold 1 -0.1 -2.8 15 20.1 14.2 10 Scheme Name 1W 1M 3M 6M 1Y 2Y 3Y Aditya Birla Sun Life Frontline Equity Fund - Regular Plan - GrowthLarge Cap Fund 2% 1% 10% 4% 8% 3% 11% Axis Bluechip Fund - GrowthLarge Cap Fund 2% 1% 11% 9% 18% 14% 20% Baroda Large Cap Fund - Plan A - GrowthLarge Cap Fund 2% 1% 12% 5% 12% 5% 10% BNP Paribas Large Cap Fund - GrowthLarge Cap Fund 2% 1% 11% 8% 17% 7% 15% Canara Robeco Bluechip Equity Fund - Regular Plan - GrowthLarge Cap Fund 2% 2% 14% 8% 16% 10% 16%

What is Exchange Traded Fund?

Theses are funds which are trades Index like Nifty -NIFTYBEES, Bank Nifty -BANKBEES, Bond ETF or PSU ETF which Trades only PSU stocks.
Imagine that you have a pretty good clue that a particular sector like PSU basket or Pharma is going to increase in the near future and you want to invest in it but you dont have any clue on which company to invest, then you go for a ETF or exchange traded fund.

An ETF can be bought and sold just like a stock, throughout the day.So when Market goes down, this goes down too. 

Pros :

Cost Involved in Buying

While buying ETF will cost you  0.05 to 1 per cent of their Net Asset Value (NAV).
Since mutual funds are often actively managed, they're generally subject to higher management fees.

No need to worry about individual stock.(The NSE and BSE will take care of who will be in the index.) If Index is to go up, ETF will go up. Not the case of Mutual Fund. If the fund has a high performing stock and a low performing one, then the returns will be nil.

Cons:

Some ETFs are very illiquid. 
You should not buy ETFs like Mutual fund SIPs. It takes commission while buying and sellin ETFs.
If you buy an ETF at 12,200, and if market reduces hereon, then to watch your ETF go down is heartbreak. Wait for Market to bottom out and then buy.