In simple words Exchange Traded Funds, known as ETFs, have simple way of investing just like a stock. Imagine combining the flexibility of stocks with the broad diversification of mutual funds—that’s essentially what ETFs offer.
ETFs started in the year 1990s in the United States, now become a global phenomenon, including in India. An ETF is a kind of investment fund that you can buy and sell on stock exchanges, just like regular stocks.
It contains various assets like stocks, commodities, or bonds. The ETF’s price is usually kept close to the value of its assets, although it can sometimes differ.
For Example:
If you were to buy shares of the Nifty 50 ETF, you would effectively own a slice of the top 50 companies listed on the National Stock Exchange (NSE) in India.
This means your investment is diversified across multiple sectors and industries, reducing risk compared to buying individual stocks.
The Growth and Evolution of ETFs in India
The Indian ETF market has come a long way since the launch of the first ETF in India, Nifty BeES, by Benchmark Mutual Fund in 2001. Initially, ETFs were met with a lots of doubts and low investor interest.
However, over the years, their popularity has increased, driven by increasing investor awareness, regulatory support, and Market Innovation.
Today, the Indian ETF market includes a wide variety of products, including equity ETFs, debt ETFs, gold ETFs, and even international ETFs.
WHY ETFS ARE IMPORTANT FOR INDIAN INVESTORS
ETFs offer a lot of benefits, making them an attractive option for Indian investors across various age groups and financial backgrounds.
Here are some reasons why ETFs should be a cornerstone of your investment strategy:
Diversification:
By investing in an ETF, you gain exposure to a broad range of securities, which helps in spreading risk.
For example:
Investing in a sectoral ETF allows you to benefit from the performance of an entire sector rather than relying on the fortunes of a single company.
Cost-Effectiveness:
ETFs typically have lower expense ratios compared to mutual funds because they are passively managed.
This means that a significant portion of your returns is not eaten away by management fees.
Liquidity:
Being traded on stock exchanges, ETFs offer high liquidity, allowing you to buy and sell units throughout the trading day at market prices.
This is particularly beneficial for investors who value flexibility and timely execution of trades.
Transparency:
ETFs disclose their holdings daily, giving investors clear visibility into the underlying assets.
This level of transparency helps investors make informed decisions and ensures that the ETF is aligned with their investment goals.
Accessibility:
With the start of online trading platforms and mobile apps, investing in ETFs has become highly accessible.
Whether you are a seasoned investor or a beginner, you can easily add ETFs to your portfolio with just a few clicks.