An Exchange Traded Fund or ETF is a mutual fund scheme that invests in a basket of assets (bonds, stocks, commodities including gold, etc.) that reflect the composition of a benchmark index for instance in case of equities this could be the Nifty or BSE Sensex. ETFs combine the advantages of both equity stocks and mutual funds to offer investors liquidity, transparency and diversification. What’s more, you can invest in as little as 1 unit of an ETF.
ETFs and index mutual funds may seem alike as they both invest in an underlying index. However, their functional differences are significant enough to make them each valuable to different types of investors. The table below offers a quick comparison between ETFs and index mutual funds.
|Index mutual funds||ETFs|
|Investment||Offers exposure to all the assets of a benchmark index.||Offers exposure to all the assets of a benchmark index.|
|Management||Passively Managed||Passively Managed|
|Buy/Sell||Can be bought or sold only at the end of the day at NAV||Can be bought or sold at real time NAV|
|Liquidity||Buy and Sell with AMC only||Buy and Sell on the exchange or from the AMC in creation unit size|
|Performance||Similar to or lower than the benchmark index.||Similar to or lower than the benchmark index.|
|Transparency||Portfolio can be viewed on a monthly basis||Portfolio can be viewed on a daily basis on the stock exchange|
|Costs||TER capped at 1 %||TER capped at 1 %|
Now that you know the what-why-how’s of ETFs, it’s time to ask the next question – Are you ready to invest in ETFs?
• seek liquidity
• aim for reasonable returns
• expect transparency
• follow a buy-and-hold philosophy
• have a long-term horizon
• want to diversify your portfolio
If your answers to all of the above were in the positive, then it’s time you added ETFs to your investment portfolio.
• A Gold ETF aims to track the price of physical gold in its respective country. A gold ETF unit is backed by a predetermined amount of physical gold. 1 unit may vary from approximately 1/10th of a gm of
gold to 1 gm of gold depending on the offering AMC.
• Investing in gold has always been a popular Indian tradition however a growing number of
Indian investors are now opting to invest in Gold ETFs rather than physical gold due to the following advantages -
• Gold ETF units are safer to hold than physical gold.
• Gold ETF units are easier and quicker to sell than physical gold.
• Gold ETF units can be bought and sold on BSE/NSE through a broker via a demat and trading account.
• All transactions are transparent and carried out at pan-India market rates during market hours at the stock exchange.
• You can start investing with as little as 1 unit which may vary from approximately 1/10th of a gm of gold to 1 gm of gold depending on the offering AMC.
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You will need a demat account in order to invest in ETFs.
You need to have completed your KYC.
Choose from a wide range of ETFs across asset classes, market sectors etc.
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Mutual fund investments are subject to market risks. Read all scheme related documents carefully.