The growth and scope of ETFs in India
Exchange Traded Funds (ETFs) are investment vehicles that combine the features of both shares and mutual funds. Just like mutual funds, they are an investment into securities, shares, bonds and other such assets. They can also be traded on the stock exchange throughout the day, just like normal shares of a company.
The major difference is that ETFs are structured to track an underlying asset, sector, commodity or index value.
What contributes to the popularity of ETFs??
Since an ETF invests into a basket of different types of securities, it enables you to minimise losses. If you invest in the shares of one particular company, your investment is limited to the performance of the same. Investing in ETFs, on the other hand, helps mitigate your risks significantly as your capital is invested into shares of different companies.
- Less expensive
Compared to a few mutual fund schemes, an ETF tends to be less expensive in the long run. Some of the outgoing costs involved with mutual funds include entry charges, exit load, management fees, etc. This tends to result in a high mutual fund expense ratio. Conversely, ETFs are passively managed investment instruments, thus there is no need for a fund manager to actively manage it, thereby reducing the fees.
ETFs are a flexible investment option and allow room for pivoting an investment strategy if it is not working as per your investment plan. Since they are traded on a stock exchange throughout the day, it is possible to track their current value. If you feel that a particular ETF is not doing well, you can simply sell the ETF based on the current market value.
Here’s why ETF investing is growing in India
The growth and popularity of ETF funds in India can be gathered from the fact that assets under management (AUM) for ETF grew by 1345.77% between the period of September 2015 and September 2020, registering a CAGR of 70%, as per data released by Association of Mutual Funds in India (AMFI).
This growth of ETFs can be majorly attributed to the unique benefits offered by this investment instrument. Some of these are:
- Combining desirable features of shares and mutual funds
- Transparent and real-time pricing
- Low-cost structure
- Tax benefits
- Highly liquid in comparison to some other investment instruments
Other than this, with the continuous efforts of Securities and Exchange Board of India (SEBI), different asset management companies, and brokerages, the future and scope of ETFs look bright in India.
Best ETFs available in India:
- UTI Sensex ETF
- Motilal Oswal Nasdaq 100 ETF
- Reliance ETF Liquid BeES
- Nippon ETF Sensex
- Axis Gold ETF
- HDFC Gold ETF
Are ETFs for you?
ETFs are marketable securities, which makes them easily tradable on the stock exchange. While this avenue does have some disadvantages, there are many investors and experts who believe that its advantages outweigh the negatives.
This instrument could be beneficial for investors who want to have a diverse investment portfolio and for those who do not really have the time to analyse each company before investing in their shares.
If you are looking to invest in ETFs, it is advisable to consider your options with the help of an expert who can curate plans that are unique to your financial goals and risk appetite.