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The National Stock Exchange plans to introduce a ‘Corporate Debt Exchange Traded Fund (ETF)' in this calendar year.
ETFs are essentially index funds that are listed and traded on exchanges. In this sense, an ETF is a basket of stocks or assets such as gold or even money market instruments. Its trading value is based on the net asset value of the underlying assets that it represents.
According to a source, “We believe that exchange traded funds on corporate debt can help in bringing more liquidity and depth in the corporate bond market. Investors will be able to invest in a basket of corporate bonds, getting thereby the benefit of a portfolio for investment.”
One medium
The new product is in line with the Government's emphasis on expanding and deepening the corporate debt market. It will help investors put money in a basket of corporate bonds with just one medium. The price discovery will be better. Simultaneously, the new product will give better enter and exit facility, the source added.
ETFs have gained wider acceptance as financial instruments whose unique advantages over mutual funds have caught the eye of many an investor. These instruments are beneficial for investors who find it difficult to master the tricks of the trade of analysing and picking stocks for their portfolio.
Various mutual funds provide ETF products that attempt to replicate the indices on NSE to provide returns that closely correspond to the total returns of the securities represented in the index.
At present, NSE provides ETF in four different categories — equity, debt, gold and world indices. There is no exchange fee on debt and world indices ETFs, while charges vary on gold and equity ETFs.
Gold ETF attracts an exchange fee of Rs 1 for a lakh while equity ETF is charged between Rs 3-3.25 a lakh. There are indications that the corporate debt ETF may get fee waiver too.
shishir.s@thehindu.co.in
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