Exchange-Traded Products

Exchange-traded products (ETPs) are exchange-listed securities that provide exposure to a specific market, index, commodity, or investment strategy. Investors can buy and sell them during market hours through a stock exchange, similar to stocks.

Key takeaways:

• ETPs trade on stock exchanges throughout the trading day.
• The three main types are ETFs, ETNs, and ETCs.
• ETFs generally hold underlying assets such as stocks or bonds.
• ETNs are debt instruments linked to benchmark performance.
• ETCs provide exposure to commodities such as gold or silver.
• ETPs can offer diversification through a single investment.
• Unlike mutual funds, ETPs have intraday market pricing.
• Investors in India can access exchange-listed ETPs through a Demat account and trading account.

Exchange-traded products (ETPs) are financial instruments that trade on stock exchanges and are designed to track the performance of an underlying asset or benchmark. The underlying exposure may include equities, commodities, currencies, bonds, or investment strategies.

Like listed shares, ETPs can be bought and sold throughout market hours. Their market value changes based on the performance of the underlying asset and investor demand.

ETPs are generally classified into three major categories. Each category has a different structure and investment objective.

What are exchange-traded funds (ETFs)?

Exchange-traded funds (ETFs) are pooled investment vehicles that typically track an index, sector, commodity, or asset class. They usually hold the underlying securities and aim to replicate their performance.

ETFs are among the most widely used ETPs because they can provide diversified market exposure through a single investment.

What are exchange-traded notes (ETNs)?

Exchange-traded notes (ETNs) are unsecured debt securities issued by financial institutions. Their returns are linked to the performance of a benchmark, index, or strategy.

Unlike ETFs, ETNs generally do not own the underlying assets. Investors are therefore exposed to the credit risk of the issuer.

What are exchange-traded commodities (ETCs)?

Exchange-traded commodities (ETCs) are products designed to track the price movements of commodities. They allow investors to gain commodity exposure without purchasing or storing physical commodities.

Common examples include products linked to gold, silver, energy resources, and agricultural commodities.

Although ETPs, mutual funds, and stocks are investment instruments, they differ in structure, trading mechanism, and exposure.

ETPs offer several potential advantages for investors seeking diversified market exposure.

Diversification

Many ETPs provide access to multiple securities or assets through a single investment. This can help spread investment exposure across different market segments.

Liquidity

ETPs can generally be bought and sold throughout market hours. This gives investors flexibility when entering or exiting positions.

Transparency

Most ETPs disclose the benchmark or asset they track. This helps investors understand the underlying exposure of the product.

Market access

ETPs can provide access to specific sectors, commodities, themes, or markets that may otherwise require multiple investments.

Exchange-traded products (ETPs) provide exchange-listed access to a wide range of assets, benchmarks, and investment strategies. The three primary categories are ETFs, ETNs, and ETCs.

Understanding how ETPs work, their advantages, risks, and differences from mutual funds and stocks can help investors evaluate whether they fit their investment objectives and risk tolerance.