ETF split FAQs: Why fund houses are splitting units and how investors benefit
AI Summary
Exchange-traded funds (ETFs) are becoming more accessible to investors with limited budgets due to recent ETF splits, which lower the per-unit price while maintaining the total investment value. This allows investors to diversify their portfolios more easily, as seen with the recent 10:1 splits of the DSP Nifty Midcap 150 Quality 50 ETF and DSP Nifty Healthcare ETF. Such splits enable investors to spread their investments across multiple ETFs without needing to invest large sums upfront.
Exchange-traded funds (ETFs) offer investors a way to build diversified portfolios with the flexibility of buying and selling them like shares. However, as ETF unit prices rise, it becomes harder for people with limited budgets to invest because they must buy at least one unit.
To address this, some mutual fund houses have conducted ETF splits to reduce the price per unit.
A split reduces the per-unit price of an ETF and increases the number of units an investor owns, while the total value of the investment remains the same.
Think of an ETF split like exchanging one ₹500 note for five ₹100 notes. The number of notes increases, but the total value remains ₹500. The same principle applies to ETFs.
Suppose you own one ETF unit worth ₹1,000. After a 10:1 split, you will receive 10 ETF units, each worth around ₹100. As the number of units increases, your total investment remains ₹1,000.
In short, only the unit price and the number of units change. The value of your investment remains the same.
Suppose you want to invest ₹4,000 every month across a gold ETF, a silver ETF, a Nifty ETF and a midcap ETF. If one unit of each ETF costs around ₹2,000, investing in all four may not be possible because ETFs are bought in whole units.
After a split, if the price of each unit falls to around ₹200, you can easily spread investments across multiple ETFs and build a diversified portfolio with a smaller amount.
Most recently, the DSP Nifty Midcap 150 Quality 50 ETF and the DSP Nifty Healthcare ETF underwent a 10:1 split, effective 3 July.
In February 206, Kotak Mutual Fund split its five ETFs, including Bank, Consumption, Silver, Value 20 and Midcap 150 ETF.
Earlier, Kotak Gold ETF, ICICI Prudential Nifty 100 ETF, Nippon India ETF Nifty 50 BeES and Nippon India Gold BeES have also undergone an ETF split.
Nothing. The additional ETF units are automatically credited to your demat account. There is no application or request to submit.
Only investors who own the ETF on or before the record date are eligible for the split. Anyone buying the ETF after that date can purchase the split-adjusted units directly.
No. An ETF split does not trigger any tax because you are not making any profit at the time of the split.
For example, if you bought 100 ETF units at ₹100 per unit price, your total investment value is ₹10,000.
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