Dos and don't of investing in exchange traded funds (ETFs)

[Bhuvan]

@RajendraPatil

can you touch upon current tax treatment as per ETF categories like Equity, Debt, Gold (Silver), International equity.
The information available is quite confusing so it would be nice if you can thro some light on it.

Taxation is the same as mutual funds. Please see this post:

Everything you need to know about the taxation on stocks, mutual funds and bonds

Here’s an overview of Taxation for Stocks, Mutual Funds, Bonds and some Tax planning sections all at one place. Stocks Particulars Tax Applicability Type of Income Carry forward of losses Remarks (If any) Intraday Equity trading As per slab rates Business (Speculative) 4 Years against same income F&O Trading of Equity, Commodity & Currency As per slab rates Business (Non-Speculative) 8 years against business income Sale of short term equity (<12 Months) 15% S…

@RajendraPatil

My understanding was ETF creating AMC (owner) is supposed to take care of both of these scenarios by a. dynamically creating/destroying units b. stepping in during volatile markets. Shouldn’t there be penalty to ETF owner AMC, if AMC cant handle these scenarios ?

What you are referring to is market making. For market makers to make markets or provide liquidity, there has to be enough demand, which isn’t the case with a lot of ETFs. In some cases, there are other issues that market makers could face like funding constraints, regulatory restrictions, volatility etc. Having said that, in most of the popular ETFs, liquidity is fairly ok for small investors.