Exchange Traded Funds or ETFs are investment schemes whose units are listed on stock exchanges after the New Fund Offer (NFO). They can be traded just like equity shares. An ETF would have some underlying security or group of securities like an index, sector stocks or commodities, like gold. These underlying securities determine the ETF’s value. You can think of it as a mutual fund that you can buy and sell at real time prices throughout the trading day.

An index ETF is an ETF that has an index (of stocks, commodities or any other asset) as the underlying security. An index ETF would be a passive investment instrument. When the value of the underlying index appreciates, the ETF price goes up and vice versa.

Ease of transactions:You can buy or sell ETF units through any member-broker of the stock exchange at your convenience.

Diversification: As each ETF is comprised of a basket of securities, it inherently provides diversification across an entire index.

Affordability: The unit cost of an ETF can be very low when compared to the prices of its constituents. These lower prices are attractive for retail investors, who otherwise may not have been able to afford the basket.

Transparency:

The investor has a better idea beforehand about where his money will be invested. ETFs generally move in tandem to the performance and yield of their underlying security.

The Quantum Index Fund is based on the S&P CNX Nifty (Nifty) Index. The Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy.

The Nifty is computed using market capitalization weighted method, where the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value. Currently, the constituents of the Nifty account for almost 45% of the traded value of all shares on the NSE and nearly 58% of the total market capitalization. So the Nifty would be an ideal investment for any investor looking to invest in India.

The S&P CNX Nifty Index will be the benchmark of the scheme.

The investment objective of the Quantum Index Fund is to provide returns that, before expenses, closely correspond to the returns provided by the S&P CNX Nifty.

The Quantum Index Fund seeks to offer investors an innovative and cost-efficient means to invest in the Nifty. Through the lower cost of operations and the availability of units having smaller denominations, the Quantum Index Fund would provide investors an excellent means of asset allocation. The investment management fee for the QIF is 0.25% and the total estimated expense ratio is 0.75% per annum, one of the lowest in India.

Each unit of the Quantum Index Fund will approximately be equal to 1/10th of the value of the Nifty Index. As all Nifly Index ETFs track the same underlying (the Nifty), the only differentiating factor would be the costs. The lower the costs of the ETF scheme, the higher the NAV.

Investors can buy and sell units of Quantum Index Fund on the NSE through any member broker or their online trading accounts. There are no entry or exit loads for the fund. However brokerage charges will be applicable, as charged by the broker / online trading service, to the investor for the buy/sell transaction.

Open Ended Mutual Funds

• With ETFs, investors can take advantage of intra-day movements in the market. This is not possible with Open Ended funds.
• As ETFs are listed on the exchange, distribution and other operational expenses are significantly lower. These cost-savings are passed on to the investor.
• Buying and selling is also very easy. Like any other traded security, one can buy and sell ETFs through member-brokers on the stock exchanges. It would be as convenient as calling your broker on the phone or placing an order online.
• ETFs have a lower tracking error as the creation and redemption take place in the same proportion of shares as that of the Index. As Open Ended Mutual Funds have a larger number and a greater frequency of transactions, the tracking error may be greater.

Close Ended Mutual Funds
The only similarity between Index ETFs and Closed Ended Mutual Funds is that both are listed on the stock exchange.

• In the case of the Closed Ended Mutual Fund, the number of units is fixed. Any demand supply difference could lead to the unit trading at a discount or a premium to the NAV. In the case of the Index ETF, the number of units issued is not limited. There are Authorised Participants and other market makers like arbitrageurs creating and redeeming units, giving adequate liquidity and keeping the price close to the actual NAV.
• Closed Ended Mutual Funds lack transparency. One does not know the constitution and value of the underlying portfolio on a daily basis.

Criteria	ETF	Open-End Ended Fund	Close-End Ended Fund
AUM size	Flexible	Flexible	Fixed
Buying or Selling price	Known	Not Known	Known
Counter Party	Stock Market / Fund	Fund	Stock Market / Fund
Intra-Day Trading	Possible	Not Possible	Possible
Cost of Transactions	Brokerage	Entry loads if Applicable	Brokerage

The same rules apply as in the case of buying & selling stocks / mutual fund units of Equity scheme.

Parameter	Time frame of holding	Applicable Tax Rate
Short Term Capital Gains Tax	Applicable before 1 year	15%
Long Term Capital Gains Tax	Applicable for holding of 1 year and above	Nil

Securities Transaction Tax (STT) is applicable at the time of sale and purchase of units on the exchange @ 0.125%. In the case of a squared trade, the STT payable by the investor is @ 0.025%.

In case of subscription of units directly with the Fund, no Securities Transaction Tax is payable whereas at the time of redemption, the STT payable by the investor is @ 0.25% .

Securities Covered	% of Net Assets of the Scheme	Normal Risk Profile of the Allocation Instrument
Securities covered by the S & P CNX Nifty	90% to 100%	High
Money Market Instruments, other short term debt	0% to 10%	Low
instruments as permitted under the SEBI (Mutual Funds) Regulations, 1996 and Liquid Schemes of Mutual Funds

QIF is listed on the National Stock Exchange (NSE) with the Symbol QNIFTY. Upon listing, investors may buy / sell the QIF units on the Exchange, through any broker-member including their online trading account. The minimum no. of units that can be purchased on the NSE is 1 unit.

The QIF is available only in dematerialized form. So, applicants would be required to have a (demat) beneficiary account with a Depositary Participant (DP) of either NSDL or CDSL. Investors may call their brokers or use their online trading account to buy and sell units of the scheme. The NSE code of the fund is QNIFTY.

The transactions are settled in demat mode as per the normal exchange settlement procedures.

Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) are currently not available.

However, investors can do their own systematic investment by regularly buying units every month from the NSE and accumulating their QIF holdings.

As mentioned earlier, the Nifty is computed using market capitalization weighted method. So, over time, the index members may change. The index service provider usually makes announcements of this change well in advance. Usually, on the day of change in underlying index, the fund would change the securities in its underlying portfolio by selling the securities that are going out and buying those stocks that are coming in. This will not affect the units being held by an investor, as the units will continue to track the index. The only effect may be a change in tracking error of the scheme. Portfolio Deposit and a Cash Component

On the positive side, one can invest in Index futures without paying the complete value of the contract. The investors need to pay only the margin. They can also ‘sell’ contracts that are not in position. But the downside is that the investment timeframe is limited – futures contracts in India currently have a lifespan of 1 to 3 months. For holding for longer periods, investors would need to ‘roll over’ contracts, incurring transaction costs (brokerage).

The trading risks in futures contracts are also higher. If the index moves in an opposite direction to your expectations, you may end up losing even more money than you have invested. That is the risk of leverage. It works both ways. You can have super-profits or super-losses.

Index ETFs on the other hand, are cash market products. Investors can buy and hold them as long as they want without worrying about ‘roll over risks’. There are no daily mark-to-market or margin calls.

Index funds are optimal for investors who prefer to take nominal risks and do not leverage their capital.

The Authorised Participants (APs) are appointed by the AMC. They act as market makers to improve the liquidity of the ETF on the exchanges. The APs provide quotes in the exchange and ensure that investors have a ready buyer and seller any time they wish to enter into a transaction during market hours.

Eligible investors are investors who buy units in creation unit size. Currently the creation unit size is 2,000 units. Large investors can create units directly with the fund in the creation size by exchanging Portfolio Deposit and a Cash Component

Facility of switching from other Quantum funds to QIF is not available. QIF units may be purchased directly from the NSE through a member-broker or an online trading account.

Quantum Index Fund can be bought or sold , just like any other security listed on the NSE.