Working with ETFs

#1
Does anyone have clue on how ETF's trade?

First, let's consider ETF for indices. There are mutual funds for indices tracking that deal in NAV that is decided at end of every day. All purchases/sales become effective this NAV. However, the ETF's that commit to trade on indices operate on bid/ask rates like equity stocks. With absence of common nav used for purchase / sell, there can be wide spread due to bid/ask & the ETF should not approximate the underlying indices. Any clue?
Secondly, check gold ETF (eg QGOLDHALF). Here, gold has changed from 1555 to 1595 USD... :deal: Rupee rises a little too, but QGOLDHALF does not change much, increases by .75 %. Any clue whats going on ? :stupid:
 

Alchemist

Administrator
Staff member
#2
However, the ETF's that commit to trade on indices operate on bid/ask rates like equity stocks. With absence of common nav used for purchase / sell, there can be wide spread due to bid/ask & the ETF should not approximate the underlying indices. Any clue?

Secondly, check gold ETF (eg QGOLDHALF). Here, gold has changed from 1555 to 1595 USD... :deal: Rupee rises a little too, but QGOLDHALF does not change much, increases by .75 %. Any clue whats going on ? :stupid:
Gold ETFs are not freely convertible to gold and thus the price movements of Gold ETFs don't exactly follow the price of gold.

Spreads and liquidity are issues with Indian ETFs and these issues cause prices to deviate from underlying NAVs.

Usually "Authorized Participants" make sure the deviation is not more than 3%-4%, but there are exceptions.

UTI SUNDER, when it was listed, used to trade at crazy prices. At one time it was trading at 4 times its NAV.

UTI Sunder, an ETF tracking the Nifty index, has gained over 150% since October 1, pushing its price significantly above its NAV. Sunder is now trading at the exchanges at about Rs 2,000, or about four times its net asset value of Rs 574 on Tuesday, a level many consider abnormal as an ETF's secondary market price usually hovers very close to its net asset value.
UTI cautions investors as ETF gains 150% in a month; traders could be manipulating shares - Economic Times
 
#3
Usually "Authorized Participants" make sure the deviation is not more than 3%-4%, but there are exceptions.

UTI SUNDER, when it was listed, used to trade at crazy prices. At one time it was trading at 4 times its NAV.
I was working with Franklin India Index Fund (which is a mutual fund) & that tracked Nifty really well. Can you please suggest on Nifty BeES ETF ? I can only do beginner level analysis where I see that both lines Nifty BeES & Nifty benchmark are moving in parallel ? Any clue if that would allow me to trade on intraday basis too?
 

Alchemist

Administrator
Staff member
#4
I can only do beginner level analysis where I see that both lines Nifty BeES & Nifty benchmark are moving in parallel ? Any clue if that would allow me to trade on intraday basis too?
You can trade ETFs on intraday basis, but don't expect to make much money from them.

Compared to individual stocks, the Nifty and Nifty BeES hardly move intraday.

Today's high for Nifty BeES was 535.90 and low was 532.50.

That's a movement of 0.6%.

Even on very volatile days, the range is less than 2%.

If you want to trade in Nifty BeES, you will need a super cheap broker like Zerodha. Otherwise, you will end up paying all your profits as brokerage (assuming you make profit on gross basis).
 
Top