What are Exchange Traded Funds (ETFs)?
ETFs are like shares of a company, the difference being it is focussed on an entity, a commodity ( eg: gold) or a basket of items (oil and associated products, a group of precious metals), For instance, the DB commodity index tracking ETF tracks 14 commodities.In contrast, the gold bees ETF focuses on gold.
Pure ETFs do not have a NAV like in mutual funds and the ETFs are bought and sold like shares on a daily basis and the price is at the point of time when you buy. Generally, the cost of maintenance of ETF is less than that of mutual funds. To deal with physical commodity or pure commodity has it's own risks, hence people choose ETF an a middle option of investment.
The prime attraction of ETF is its liquidity and the less cost of purchase in comparison to MF in the same class (gold, bank, pharma etc)
How can a common retail investor invest in ETFs in India?
One needs to have a trading account ( an account to activate buy and sell orders) and a demat account (to hold what you have bought in e form) to buy ETFs just like we do for shares. If you have a stockbroker, he/she can do it for you.
Can an investor purchase units of ETF through mutual fund company websites portals? Can he/she redeem the purchased units of ETF through these websites later? Or are the ETF units bought and sold only through Demat Account?
I would prefer to do it via your own trading and demat account because it would have a more direct route and have nominee details all take care of. Most companies like Kotak securities etc offer this service.