Exchange Traded Funds (ETFs) are essentially open-ended funds that track/replicate certain indices such as Nifty50 index, S&P BSE SENSEX etc. and are listed and traded on exchanges like stocks.
ETFs enable investors to gain broad exposure to an index with relative ease, on a real-time basis and at a lower cost than many other forms of investing.
Think of it as a Mutual Fund that you can buy and sell in real-time at a price that change throughout the day.
An investor can invest in ETF’s either directly with the AMC or through the exchange.
Directly with the AMC: The authorized participant/large investor can buy/sell the ETF units directly with the AMC only in creation unit size at the applicable NAV of the Scheme.
On the Exchange: ETFs are listed on the exchange. Investor can buy/sell units on an ongoing basis on NSE/BSE at the prevailing trading prices.
The process of purchase an redemption in ETFs through an AMC can be explained by the chart below