HomeFinancePersonal FinanceExchange Traded Fund: Why you really should invest in ETFs

Exchange Traded Fund: Why you really should invest in ETFs

There are ETFs that are marketplace capitalisation based such as the Nifty ETF, Sensex ETF, Midcap ETF, BSE 500 ETF, and so on.

Equities provide investors the alternative to invest in stocks of businesses that can potentially witness great development. However, equity as an asset class is intrinsically volatile and there are testing periods exactly where investors can face intense volatility. The stock marketplace tends to be volatile owing to a selection of components that impact marketplace sentiments and can lead to sharp cost movements. For a retail investor, it may possibly not be achievable to remain updated on all these components.

These sharp and generally unfavorable cost movements can have an adverse effect on an investor’s equity investing practical experience. Without the requisite expertise and practical experience, 1st-time investors can endure significant losses. Caught in a whirlpool of marketplace volatility, lead by a unfavorable investment practical experience, some of these investors would be scarred for life and may perhaps under no circumstances return to equities, obtaining lost faith in the asset class.



In order to mitigate such a unfavorable practical experience, a prudent strategy would be to use ETFs as a stepping stone into equity markets. Most ETFs are index funds, i.e. they hold the exact same securities as a stock marketplace index and that as well, in the exact same weightings. Since they replicate the index holdings, they create returns equivalent to the underlying index. E.g. Nifty 50 Index ETF will hold all the stocks of Nifty 50 in the exact same proportion as the index. As a outcome, the fund will mirror the returns generated by the Nifty 50 index. Similarly, BSE 500 ETF will invest in the 500 businesses and the investors as well would get a likelihood to participate in them through investing in BSE 500 ETF. The NAVs of such schemes rise or fall in tandem with the rise or fall of the index.



Why ETFs?

ETFs are an fantastic, easy, one of the least expensive techniques to take exposure to equities for investors who have lengthy-term objectives and want to invest in equity devoid of taking as well considerably threat. The diversity of an ETF tends to make it significantly less volatile than an person stock. More importantly, throughout volatile occasions, the draw-downs seen in an index fund are probably to be significantly less sharp, in contrast to direct investing. By investing in ETFs, one can get marketplace-linked returns devoid of the added anxiety of safety choice or marketplace timing. Also, ETFs are listed on the stock exchanges and can be traded (purchased or sold) at any time throughout the marketplace hours through a demat account.

By investing via ETFs, investors can tap into equities in a diversified manner and superior threat-adjusted returns eliminating any kind of emotional bias and stock-distinct dangers, which are pitfalls of direct investing.

For the last year, investors in India have been warming up to the notion of ETF. The exact same has been reflected in the quantity of folios for equity ETF schemes. There has been an unprecedented development in terms of ETF folio count, with the quantity of folios more than doubling from 19 lakhs to 42.5 lakhs, more than the last year, and correspondingly the AAUM elevated from 1.5 lakh crores to 2.8 lakh crores.

Diversity in Offerings

Within the ETF universe itself, there are a selection of offerings obtainable. There are ETFs that are marketplace capitalisation based such as the Nifty ETF, Sensex ETF, Midcap ETF, BSE 500 ETF, and so on. Other than this, there are ETFs based on distinct sectors such as IT, banks, healthcare, and so on. This implies if an investor is bullish on a sector, say IT sector, and desires to take exposure to a bunch of names from the IT space, then investing in an IT ETF is a possibility.

Other than these plain vanilla offerings, for a savvy investor, there are element-based ETFs obtainable as effectively. Currently, most of the schemes are based on components namely – alpha, low volatility, momentum, worth, and top quality. These could be single-element funds or a mixture of these components. To conclude, if you are an investor searching to invest in equity markets then ETFs can prove to an intriguing stepping stone.

by Nitin Kabadi, Head- ETF Business, ICICI Prudential AMC
Equities provide investors the alternative to invest in stocks of businesses that can potentially witness great development. However, equity as an asset class is intrinsically volatile and there are testing periods exactly where investors can face intense volatility. The stock marketplace tends to be volatile owing to a selection of components that impact marketplace sentiments and can lead to sharp cost movements. For a retail investor, it may possibly not be achievable to remain updated on all these components.

These sharp and generally unfavorable cost movements can have an adverse effect on an investor’s equity investing practical experience. Without the requisite expertise and practical experience, 1st-time investors can endure significant losses. Caught in a whirlpool of marketplace volatility, lead by a unfavorable investment practical experience, some of these investors would be scarred for life and may perhaps under no circumstances return to equities, obtaining lost faith in the asset class.

In order to mitigate such a unfavorable practical experience, a prudent strategy would be to use ETFs as a stepping stone into equity markets. Most ETFs are index funds, i.e. they hold the exact same securities as a stock marketplace index and that as well, in the exact same weightings. Since they replicate the index holdings, they create returns equivalent to the underlying index. E.g. Nifty 50 Index ETF will hold all the stocks of Nifty 50 in the exact same proportion as the index. As a outcome, the fund will mirror the returns generated by the Nifty 50 index. Similarly, BSE 500 ETF will invest in the 500 businesses and the investors as well would get a likelihood to participate in them through investing in BSE 500 ETF. The NAVs of such schemes rise or fall in tandem with the rise or fall of the index.

Why ETFs?

ETFs are an fantastic, easy, one of the least expensive techniques to take exposure to equities for investors who have lengthy-term objectives and want to invest in equity devoid of taking as well considerably threat. The diversity of an ETF tends to make it significantly less volatile than an person stock. More importantly, throughout volatile occasions, the draw-downs seen in an index fund are probably to be significantly less sharp, in contrast to direct investing. By investing in ETFs, one can get marketplace-linked returns devoid of the added anxiety of safety choice or marketplace timing. Also, ETFs are listed on the stock exchanges and can be traded (purchased or sold) at any time throughout the marketplace hours through a demat account.

By investing via ETFs, investors can tap into equities in a diversified manner and superior threat-adjusted returns eliminating any kind of emotional bias and stock-distinct dangers, which are pitfalls of direct investing.

For the last year, investors in India have been warming up to the notion of ETF. The exact same has been reflected in the quantity of folios for equity ETF schemes. There has been an unprecedented development in terms of ETF folio count, with the quantity of folios more than doubling from 19 lakhs to 42.5 lakhs, more than the last year, and correspondingly the AAUM elevated from 1.5 lakh crores to 2.8 lakh crores.

Diversity in Offerings

Within the ETF universe itself, there are a selection of offerings obtainable. There are ETFs that are marketplace capitalisation based such as the Nifty ETF, Sensex ETF, Midcap ETF, BSE 500 ETF, and so on. Other than this, there are ETFs based on distinct sectors such as IT, banks, healthcare, and so on. This implies if an investor is bullish on a sector, say IT sector, and desires to take exposure to a bunch of names from the IT space, then investing in an IT ETF is a possibility.

Other than these plain vanilla offerings, for a savvy investor, there are element-based ETFs obtainable as effectively. Currently, most of the schemes are based on components namely – alpha, low volatility, momentum, worth, and top quality. These could be single-element funds or a mixture of these components. To conclude, if you are an investor searching to invest in equity markets then ETFs can prove to an intriguing stepping stone.

by Nitin Kabadi, Head- ETF Business, ICICI Prudential AMC



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