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Understanding ETFs Uses, Returns and Comparison with Mutual Funds and Stocks

 Exchange-Traded Funds (ETFs) have gained popularity among investors for their unique features and benefits. In this blog, we'll explore the uses of ETFs, their potential returns, how they differ from mutual funds and stock investments, and their safety profile. What is an ETF? An ETF is a type of investment fund that trades on stock exchanges, much like individual stocks. It holds a collection of assets, such as stocks, bonds, or commodities, and aims to track the performance of a specific index, sector, or asset class. Uses of ETFs Diversification : ETFs allow investors to gain exposure to a wide range of assets without having to purchase each individually. For instance, an ETF tracking the S&P 500 gives you exposure to 500 different stocks, reducing the risk associated with individual stock investments. Cost Efficiency : ETFs often have lower expense ratios compared to mutual funds. They typically pass on lower management costs to investors since they are often passively man
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BASEL II - Three Pillar Approach.

There are three pillars in BASEL II - 
  1. Minimum Capital Requirement.
  2. Supervisory Review of the Capital Adequacy and
  3. Market Discipline/public Disclosures.
Pillar I(Minimum Capital Requirement) -
  • Credit Risk 
    • Standard Approach
    • Internal Rating Based Approach
    • IRB Foundation 
    • IRB Advanced
  • Market Risk
    • Standard Measurement method
    • Internal Method Approach
  • Operational Risk
    • Basic Indicators
    • Standardization Approach
    • Advanced Measurement Approach.
Pillar II(Supervisory Review)  
  • Process for accessing the capital adequacy relative to the risk profile(ICAAP =Internal Capital Adequacy Assessment Process)
    • Also the risks for which no capital requirement is calculated in pillar I(interest rate and liquidity risk of the banking book, business risks etc).
  • Enhance the development and use of better risk management and risk mitigation techniques.
  • Supervisory review process.
Four Principles of Supervisory Review-
  • Internal process in banks for assessing capital adequacy in relation to risk profile.
  • Supervisory review and evaluation of banks internal capital adequacy assessment strategies.
  • Supervisors to expect banks to operate above the minimum regulatory capital ratios.
  • Supervisory actions intervention at an early stage to prevent slippage.

Pillar III(Market Discipline)
  • Disclosure Requirement
    • For different risk methodology and instrument type.
  • Basic requirements and additional recommendations regarding the disclosed information. 

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