Are ETFs better suited for high net worth individuals who time the market?
They are aimed at all classes of investors. A retail investor can buy a unit at 1/10th the value of index… If the index is 3,500, you can buy one share of the index at Rs 350. These funds are often used to park money temporarily. How are they as a long-term investment option? A fuel-efficient car will be good for travelling both from this building to that and even to Bangalore. ETFs have flexibility for short- term investors, by facilitating intra-day timing. At the same time, the structure is unique. In an open-ended fund, if I am a long-term investor, I end up subsidising the short-term investor (because the transaction costs are shared by all investors, both short- and long-term, on a pro-rata basis). In an ETF, the units are created in kind. So I receive stock in an invested form. The short-term investor pays his own costs. Transaction costs are not part of the expense ratio in ETFs. Is the asset base of ETFs subject to more fluctuation? The asset base of Bank BeES, for instance,
