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Exchange-Traded Notes

Updated on March 6, 2023

An Exchange-Traded Note (ETN) is a kind of debt instrument issued by a financial entity such as a bank. It has a long, fixed tenure ranging from 10 to 30 years. ETNs are listed on the major stock exchanges and can be traded based on demand and supply. Although they are similar to debt instruments, ETNs do not offer any interest payment to the investors. The investor’s profit or loss comes from the performance of the asset or index that it is tracking. The investor has an option to sell the ETN before the end of tenure or hold it to maturity.

Features of ETN

Some features of ETNs are:
1. An ETN just tracks the performance of assets and does not own them.
2. ETNs are traded on exchanges and thus investors can sell their ETNs as per demand.
3. ETNs have an annual expense ratio for covering maintenance, administration and other costs.

Benefits of Exchange-Traded Notes

Some benefits of Exchange-Traded Notes are:
a) As ETNs do not pay any dividends or interest, there is no incidence of short- term capital gains tax. The only tax payable will be on maturity.
b) As ETNs do not own any assets, they do not require any rebalancing. They just mimic the index or benchmark asset class.
c) ETNs can track commodity, currency as well as foreign markets, which are otherwise not easily accessible for retail investors.