Brief on Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) have been in existence in India for quite some time now. But so
far ETFs have not enjoyed the kind of popularity that the conventional Mutual Funds enjoy. One
reason could be the lack of understanding of the concept of ETF amongst the general investor.
Second, and probably the more important reason, is that ETFs by nature track a certain index
(e.g. Nifty or the Bankex). Hence, the returns one can expect from ETFs will be equal to the rise
in the index. Whereas, India is a growing market and hence offers huge opportunities in the nonindex
shares too. Therefore, it is not difficult for an active fund manager to beat the index and
offer better returns. As such ETFs (and index-funds too, by that logic) have comparatively
negligible AUMs.
What are ETFs? How are they different for a normal MF? Are they worth investing? We look at
the answers to these and some other common queries regarding the ETFs