Etfs, Etns and E-Commodities Commodity Research Paper

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The returns for ETN investors are pegged to certain bench marks where by the underwriting banks agree to pay the amount in the index less the investor fees upon maturity. Due to their unsecured nature, they are backed by the credit of the underlying banks.

Advantages

It however has several advantages. ETNs offer access to new markets and exposures whereby the markets which were once inaccessible to the various individual investors are now reachable. It also offers an element of tax efficiency for the investors whereby it is treated as a prepaid contract. ETNs also have minimal tracking errors which are associated with the ETFs which come about as a result of the diversification.

Disadvantages

ETNs returns are backed by the credit of the underwriting bank, should the bank go bankrupt, the investors may lose their investments. ETN is still a new concept and the markets have not fully opened up for the investment option which therefore might result into illiquidity.

E -- Commodities

The commodity market is accessible to retail investors as opposed to when it was only meant for a certain class of investors.

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The retail investors have the option to buy precious and base metals in small quantities and hold them in electronic form. The investors can buy, hold and liquidate the commodity or get converted into physical coins. The exchange offers seven commodities which are in electronic form; gold, zinc, silver, copper, lead, nickel and platinum.

Advantages

E-commodities have the advantage of being cost effective and give good returns compared the ETFs. There is also the speed in converting the units into physical commodities and low documentation charges required. Another great advantage is the fact that they do not have any underlying costs which is the case with ETFs which have a negative impact on the investor's returns (Rahul Oberoi, 2012)

The investors therefore have the option to choose which of the above options to use having compared the differences and the options available......

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