Exchange Traded Funda: How ETFs Work

ETFs have taken over the world, or at least that’s what you’d believe if you spent any time reading financial media in the US. Passive investing! Low costs! No fund manager egos! And of course, that looming prediction: “ETFs will destroy price discovery!”

But in India? Crickets. While ETFs have become mainstream in the US, with trillions of dollars flowing into passive investing strategies, India's ETF story is still unfolding. Why haven’t ETFs exploded in India despite our obsession with stocks? And more importantly, should you be investing in ETFs or mutual funds?

In this episode, Deepak and Shray get into the weeds on all things Exchange Traded Funds — what they are, how they work, where they don’t work, and why, despite sounding like the next great revolution in investing, they haven’t quite clicked here yet.

00:00:00 - Introduction
00:02:01 - How big are ETFs?
00:07:30 - Why are ETFs so successful in the US
00:09:42 - How do ETFs work?
00:13:52 - Isn’t it better to move into ETFs then?
00:16:01 - Who are you buying the ETF from?
00:20:08 - Are there any advantages in ETFs over MFs in India?
00:25:10 - What role do Market Makers play in ETFs?
00:30:12 - When and why do ETF prices trade above their NAV?
00:39:14 - Role of liquidity in ETF prices
00:42:06 - Why don’t people do SIPs into ETFs and Stocks?
00:48:44 - How are ETFs useful for investors?
00:53:17 - What about Commodity ETFs?
00:55:47 - What about Liquid ETFs?
00:59:52 - How do regulations like stock-lending and free-float impact ETF returns?
01:04:53 - What are Deepak’s thoughts about Active ETFs?
01:07:06 - Will ETFs gain market share from Mutual Funds?