What are exchange-traded funds?
What's the story
Exchange-Traded Funds (ETFs) have become an increasingly popular investment option in India, providing a diversified portfolio at a much lower cost than mutual funds. For beginners, Indian ETFs provide an easy way to enter the stock market without having to deal with the complexities of individual stocks. Here's a look at how you can invest in Indian ETFs, their benefits, and how to choose the right ones.
#1
Understanding ETFs in India
ETFs are investment funds that trade on stock exchanges, just like individual stocks. They track an index, commodity, or a basket of assets and provide investors with exposure to multiple securities through a single trade. In India, ETFs track popular indices such as Nifty 50 and Sensex, giving investors an easy way to invest in the broader market.
#2
Benefits of investing in ETFs
One of the biggest advantages of investing in ETFs is their low expense ratio compared to mutual funds. They also provide liquidity as they can be bought or sold anytime during market hours. Further, since they are passively managed, they tend to have lower management costs. This makes them an attractive option for cost-conscious investors.
#3
How to choose the right ETF
When selecting an ETF, consider factors such as the underlying index it tracks, expense ratio, liquidity, and trading volume. Look for ETFs with high liquidity as they tend to have tighter bid-ask spreads, making transactions cheaper. Also, analyze the historical performance of the underlying index and ensure it aligns with your investment goals.
#4
Steps to invest in Indian ETFs
To invest in Indian ETFs, open a demat account with a broker that provides access to NSE or BSE. Once your account is set up, research and select an ETF that fits your investment strategy. Place buy orders through your broker's trading platform during market hours, just like you would for stocks.