Pakistan Stock Exchange is set to launch Exchange Traded Fund (ETF) in the next few weeks.
In the start, two ETFs – one by NIT and another by UBL Fund – are expected to be launched by the end of this month, Hassan Raza, General Manager, Product and Research, Pakistan Stock Exchange told the media.
The product will be offered by Asset Management Companies as per the guidelines of the Securities and Exchange Commission of Pakistan (SECP).
JS Global will perform the function of the market maker, meaning it would remain available to buy and sell units of the ETFs at every point of time though the PSX trading platform.
It will include a basket of around 10 selected stocks each and their units would be available for trade like shares of companies listed at the Pakistan Stock Exchange (PSX). Long-term traders usually invest in ETFs globally.
ETF will be listed on Pakistan Stock Exchange and would be traded on the PSX similar to stocks.
A type of security, ETF involves a collection of securities — such as stocks — that often track an underlying index. ETFs are in many ways similar to mutual funds. However, they are listed on exchanges and ETF shares trade throughout the day just like an ordinary stock.
This product enjoys advantages of both mutual funds and stocks. He said that ETF makes portfolio investment affordable for all investors along with the ability to buy and sell in the secondary market.
He added that the cost of investing in ETF is generally lower than investing in mutual funds. The direct costs borne by investors in ETF are only the buying and selling exchange commission. There is no front-end or back-end load. Being passive strategies, ETFs management fees are lower as compared to the mutual funds and are disclosed in the ETF prospectus.
Raza said more funds, including government papers ETF and commodities ETF are also in the pipeline Regarding diversification, Hassan Raza said generally, underlying ETF investments are diversified as per the underlying index reducing the company-specific and ETF diversification is fully transparent.
In key participants, Pakistan Stock Exchange will provide a trading platform and will regulate trading and market maker and stock exchange will also act as index provider. Brokers charge a commission for each trade.” added Raza, however, added that two new ETFs will not make much difference in the market performance.
Pakistan’s stock market has also decided to increase the maximum limit on the rise or fall in an individual share price to 7.5% in a day from 5% at present. The limit will be increased gradually with effect from January 20.