What Are ETFs and Why Should You Invest in Them in India
Introduction
ETFs (Exchange-Traded Funds) are gaining popularity among Indian investors as a low-cost, flexible alternative to mutual funds. They combine the best aspects of stocks and mutual funds, offering the ability to invest in a diversified portfolio through a single security.
What Are ETFs?
An ETF is a basket of securities—such as stocks, bonds, or commodities—that tracks an index or a specific theme. ETFs are traded on stock exchanges like individual shares, providing real-time pricing.
Why ETFs in India?
- Cost-Effective: Lower expense ratios compared to mutual funds due to passive management.
- Diversification: Invest in multiple sectors, markets, or commodities through a single ETF.
- Liquidity: ETFs can be bought and sold at any time during market hours.
- Transparency: Daily disclosure of portfolio holdings ensures clarity.
- Accessibility: ETFs are available in small denominations, making them ideal for retail investors.
Popular Types of ETFs in India
- Equity ETFs: Track indices like Nifty 50 or Sensex, offering exposure to top-performing companies in India.
- Example: Nippon India ETF Nifty BeES.
- Gold ETFs: Track domestic gold prices, ideal for investors seeking exposure to gold without holding physical assets.
- Example: SBI ETF Gold.
- Debt ETFs: Invest in government securities and bonds, providing stable returns with lower risk.
- Example: Bharat Bond ETF.
- Thematic/International ETFs: Focus on specific sectors like IT or healthcare or offer exposure to global indices like S&P 500 or Nasdaq.
- Example: Motilal Oswal Nasdaq 100 ETF.
