Can ETF become Zero ?
I got NSE ETF from below page ,
https://www.nseindia.com/market-data/exchange-traded-funds-etf
I see some stocks are getting delisted on which retail investors are receiving Rs. 0.
will it happen on ETF ? if Yes, what is the best way to avoid ?
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Can Someone please help on my query ?
ETFs mimic a particular index and hold securities in the same weight as the index. If the prices of all the securities go to 0 (which in turn means that the index value would also go to 0), then yes the ETF should technically have a NAV of 0.
Why not.
If people in India start fighting each other we will reach that target quickly.
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I respect everyone’s answer here. But I don’t think that the value of an ETF can ever be zero or negative because their values keep resetting daily. It is unlikely for its asset to go up 100% in a single day and so, an ETF can’t become zero.
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An ETF follows a particular index and the securities are present at the same weight in it. So, it can be zero when all the securities go to zero.
Short answer ‘Practically Impossible’
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If for some reason Nifty crashes 30-40% in a day then ETFs based on it will likely fall lot more, because ETFs prices are decided by trades and not exactly mimic Nifty 50 prices. In a market like India ETFs doesn’t have lot of liquidity, just look at ugly chart of NiftyBees.
Not exactly if there is premium or discount market makers would buy sell redeem and create new units. Usually 1 or 2 days at maximum that price might seem deviating from index. Tracking error is there both in ETF and index mutual fund.
If there illiquidity then you can contact AMC and redeem the units or sell to them. There was a detailed post here in trading qna about redeeming ETF units
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What’s ugly in that ? Kindly explain.
Kindly go and check the facts.
30-40% in a day?
I don’t think that is possible because an ETF invests in a number of companies and it’s just not possible for all those companies to go bankrupt at the same time.
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An ETF becoming zero means all the companies in it becoming zero at the same time which is quite absurd. This is probably a reason why they say that ETFs are comparatively a safer investment option.
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Practically speaking, ETF can not become Zero. ETF represent index and all the stocks are in same proportion/ weightage as the index. For ETF to become Zero, all the stocks should become Zero. Which, in real life is not possible.
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I recently got to know this and it completely shocked me. I used to think that ETFs were a good option to diversify my portfolio.
Of course, not! I don’t think there will ever be situations when all the companies that the ETF puts money in go bankrupt at the same time.
It is unlikely for any asset to go zero, so EFT can never be zero.
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That can’t happen, so do not worry about it.
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I think instead of worrying about ETF becomes zero or not(which is practically next to impossible ), you should worry about whether your investment will be positive or negative over the time
and this scenario is not so uncommon also.
I am not worrying . I am trying to understand.