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SMS EDU to 561617 SMS EDU to 561617 Exchange Traded Fund (ETF) is a marketable security that tracks an index, a commodity, bonds, or a basket of assets. They are mutual funds that are listed on the stock exchange and traded like stock units. Much like any other mutual fund scheme, ETFs provide diversification into various tradeable assets like equity stocks, gold etc. ETFs can be a good investment vehicle for those who - wish to delve in the stock market but have limited expertise and want to diversify their investments.
ETFs track a particular index, and Debt ETFs and Gold ETF have their respective benchmark of fixed income indices and domestic gold prices. Please bear in mind that you need to have a Demat account to be able to invest in ETFs.
Diversification- Vis a vis investing in stocks, wherein you are solely invested in one company and hence at greater risk; investing in ETFs allows you to diversify your portfolio by including multiple sectors in a single unit of ETF.
Lower Expense Ratio- Because ETFs like Nifty 50 ETF are typically passively managed funds, the expense ratio tends to be lower than other kinds of actively managed mutual fund schemes. A passively managed fund is one which does not require the fund manager to actively research and manage the fund’s portfolio. Since ETFs intend to replicate their respective benchmark indices, the need for active stock picking is not required.
Tradability- ETFs provide you with instant gratification when it comes to trading the units. While any other mutual fund unit can only be subscribed or redeemed at a single NAV price for that particular day, ETF units can be bought and sold many times in a day on a real-time basis just like any other stock.
No Managerial Risk-Since ETFs are passively managed funds. Here, the fund manager is only looking to replicate an index
ETFs may be ideal for bringing in the diversity in your portfolio. Consider it a foot in the trading door with a relatively lower expense ratio as compared to other actively managed mutual fund schemes. And with no active stock picking, it incurs lower administrative costs. But please note that the ETFs are subject to the overall market volatility/price fluctuations of the stock market.
