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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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MCLR (Marginal Cost of Funds based Lending Rate)


1. New Lending Rate effective from April 2016.​
2. To improve the efficiency of monetary policy transmission.​
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Following are the main components of MCLR - 

 1. Marginal cost of funds;​
2. Negative carry on account of CRR;​
3. Operating costs;​
4. Tenor premium.​
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The main components of base rate system are - 
• Cost of funds (interest rates offered by banks on deposits)​
• Operating expenses to run the bank.​
• Minimum Rate of return ie margin or profit​
• Cost of maintaining CRR (Cash Reserve Ratio).​
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Marginal Cost of funds (MCF): The marginal cost that is the novel element of the MCLR. It has 2 components 
(a) Marginal cost of Borrowings 
(b) Return on Networth​

 Negative carry on account of CRR is the cost that the banks have to incur while keeping reserves with the RBI. The RBI is not giving an interest for CRR held by the banks. The cost of such funds kept idle can be charged from loans given to the people.​

 Operating cost: is the operating expenses incurred by the banks​

 Tenor premium: denotes that higher interest can be charged from long term loans​
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As per the new guidelines, banks have to set five benchmark rates for different tenure or time periods ranging from overnight (one day) rates to one year i.e overnight, one month, three month, six month and one year.​

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