Navigating through the world of ETF’s

Navigating through the world of ETF’s

09 Apr 2019

In today’s market, you would have surely heard of the term “ETF’s” or Exchange Traded Funds – these funds have already become extremely popular investment vehicles in developed markets.

Globally, there are several listed ETF’s and the performance of many of these funds has been nothing short of incredible.

We will now present the salient features of ETF’s which will help you navigate effortlessly.

Basics of ETF –

  • ETF’s or Exchange Traded Funds are mutual funds that are listed and traded on stocks exchanges just like shares.
  • ETF’s offer you a low-cost way to diversify your portfolio. With a single ETF share, you can take exposure to the entire stock market.
  • If you don’t know how to analyse and pick stocks and mutual funds for your portfolio, ETF’s are the right investment product for you.
  • ETF’s aim to replicate the performance of their benchmark index.
  • ETF achieve this by purchasing securities in the same weightage as the benchmark index.

Types of ETF-

  • You can invest in gold and Government Bonds through ETF’s
  • If you want to park your funds in a safe short-term investment, there are ETF’s available
  • If you want to diversify further by investing abroad, you can easily do that through ETF’s
  • ETF’s diversified benchmark indices such as Nifty 50.
  • You can invest in Bank Nifty ETF

It is easy to construct a diversified portfolio with ETF’s. If you want to create a portfolio that has 50% equity and 50% debt, you can simply put 50% of your money in an equity ETF and 50% in a bond ETF.

Nuances of investing –

  • You need to just place an order with your regular broker to buy or sell units of essentially index funds
  • ETF’s through the stock exchange
  • ETF’s seek to minimize risks and reduce costs and thus these are a great avenue to invest for both individual as well as institutional investors.

Efficient market hypothesis states that at any given time, security prices fully reflect all available information and the genesis of ETF’s also stems from the same. ETF’s work through a special set of first level intermediaries called Authorized Participants. ETF’s are able to keep costs low because these are well connected to the unique process of creation and redemption of units through ‘in-kind’ transactions.

Why are ETF’s better then Mutual Funds?-

  • Mutual funds involve higher costs because they buy and sell securities in the market.
  • ETF’s may be a better option if you were to bet on the market for the short term and this is because of lower expenses.
  • Actively managed funds could be a better option if you are looking to build wealth over the long term.

We can summarize that for nearly a century, traditional mutual funds have offered many advantages over direct investments in the equity markets. Mutual funds provide investors broad diversification, professional management, relative low cost and daily liquidity.

ETF’s take the benefits of mutual fund investing to the next level. ETF’s can offer lower operating costs than the traditional open-ended funds, flexible trading, greater transparency and better tax efficiency in taxable accounts. There are drawbacks, however, including trading costs and learning complexities of the product. Most informed financial experts agree that the pluses of ETF’s overshadow the minuses by a sizeable margin.

Founded in 2005 by new–age entrepreneur Abhishek Bansal, the Abans Group has evolved into a globally diversified conglomerate, providing expertise in Broking Services, Non-Banking Financial Dealings, Financial Services, Agri-Commodity Services, Warehousing, Realty & Infrastructure, Gold Dore Refinery & Manufacturing, Trading in Metal Products, Pharmaceuticals, Software Development & Wealth Management. The Group is a comprehensive financial and non-financial services and solutions provider, aiming to provide end-to-end solutions to its clients.