Investors in India have been investing in ETFs for the past few years. The popularity of these exchange-traded funds has increased because they are very similar to mutual funds but with lower expenses and more tax benefits, making them a great option for long-term investors.
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Exchange-Traded Fund (ETF) is a type of investment that is bought and sold on stock exchanges. This is a way to make money from the movement in the market without actually owning any stocks.
ETFs are usually based on an index, such as the Nifty or Sensex. The price of an ETF changes as the value of its underlying assets change.
In this blog, we will look at different types of ETFs available in India and their uses:
These funds track a specific index, like the Nifty 50 or Sensex, and they are likely to perform in line with the index. For example, if the Sensex goes up by 10 per cent, then your fund will also go up by 10 percent.
Index Fund ETFs offer investors the opportunity to invest in large companies that trade on the stock market with minimal risks. They are suitable for long-term investors who do not mind taking only moderate returns.
The sole purpose of Gold ETF is to track the domestic physical gold prices. They are passive investment instruments which are completely dependent on gold prices and invest in gold bullion.
Gold ETFs represent units in the form of physical gold which is available in paper or dematerialised form. Let’s understand it with an example: 1 Gold ETF unit is equal to 1 Gram of gold. Gold ETFs combine the flexibility of investment and simplicity of gold investments.
Also Read - Tax on Gold Investment
Leveraged ETFs are a type of equity fund that uses margin loans to increase the return on your investment by borrowing money and investing in securities, commodities or other financial instruments.
Leveraged ETFs can be used by investors to make short-term trades or long-term investments depending on their investment goals and risk appetite.
Also Read - ETFs of Silver – A Good Investment
Bond ETFs invest in fixed income assets such as bonds and debt instruments issued by companies or governments. Bond ETFs may be geared or ungeared and include government bond ETFs, corporate bond ETFs, municipal bond ETFs and emerging market bond ETFs among others.
Currency ETFs allow you to invest in the currencies of different countries. The value of your investment will rise or fall as the currency rates change against the US dollar.
In India, we have a currency ETF that allows us to invest in currencies other than the Indian rupee. This is a smart move for investors who want to diversify their portfolios by investing in other currencies.
A lot of investors have been asking me about the benefits of investing in ETFs. So I thought I would write down my thoughts and list out some of the benefits that investors can expect when they invest in an ETF.
Diversification: One of the biggest benefits of buying an ETF is diversification. You get exposure to a basket of stocks and bonds, which helps reduce risk. If one company goes down, it's possible that another may go up.
No Need to Monitor Individual Stocks: If you buy an ETF, you don't need to keep monitoring individual stocks or bonds every day or week because the fund manager does all that for you! You just need to check once in a while if there are any changes in the holdings or fees charged by your fund manager.
Lower Management Fees: The management fees charged by mutual funds are typically much higher than those charged by ETFs, making them more cost-effective for investors with smaller portfolios who are looking for diversification without taking too much risk or volatility.
Exchange Traded Funds (ETFs) are a great way to invest in stocks, commodities and bonds without having to buy the underlying asset. It's a passive investment vehicle that tracks the performance of an index or commodity.
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