What is ETF – Exchange Traded Fund
In simpler words, ETFs are those index funds which are listed on an exchange; however, they trade like a stock on an exchange. The prices associated with ETFs vary throughout the day since they are bought and sold constantly. The good part with ETF is that it does not perform like other index funds and does not outperform or beats the market. Rather, it tries to be the market.
Who can go for ETFs?
It’s considered to be quite a safe kind of investment. People who want to invest their money as a long term investment are the perfect target audience for ETFs. Moreover, it is a preferable option for someone who is an amateur in investing. People who are looking for a low cost diversified portfolio or do not have enough capital to invest may also go for it at their convenience.
Benefits of ETF
The most remarkable benefits with EFT are that you can trade it like normal stocks on a real time basis and at the same time put advance orders on purchase such as limits or stops. It’s a low cost investment as they have the lowest expense ratios compared to other schemes. They are diversified, simple and transparent and no hick-ups like form filling are required for transactions.
You can simply invest directly from the fund house or the exchange. For a layman to start with, this is the best choice and they can start investment even through a small corpus. Moreover, they are taxed just like stocks, so you can take advantage of special rates for short-term and long-term capital gains.
Last but not the least, there are certain things that you need to keep in mind before investing in ETF. First, invest in EFTs only with ample secondary market liquidity. Moreover, investing in sectoral ETFs is prone to higher volatility as compared to key benchmark ETSs just like Nifty. Over all, ETFs are easier, more secure and give you decent returns.