What is ETF?

ETF or Exchange Traded Fund is a basket of stocks or securities of index which can be traded over exchange. These funds have composition same as the index such as Sensex, Nifty,etc.

• However some portion of the fund is held in cash or money market securities for providing liquidity to investors.
• The return from these funds slightly differ from the index on which is based because of the composition of liquid securities.
• Shareholders do not own or claim the underlying stocks of the ETFs as they are investing indirectly through the mutual fund houses.
• They are also known as passively managed funds.
• ETFs differ from mutual funds in the way that mutual funds are valued once in a day whereas ETFs can be traded anytime during the market hours.
• You can buy or sell them anytime like the stocks and gain from the price differences.
• Different exchange funds offer different returns even they belong to the same index since the percentage of debt and liquid assets varies in the funds.
• The prices of these funds change throughout the day as they are being purchased and sold.
• ETFs are simple, diversified, cost effective and less risky.

Top performing ETFs:

Exchange-traded fund(ETF) is kind of an index fund that invest in an index, a commodity, currencies, bonds etc. ETF is an excellent investment instrument for achieving investor’s goals, provided used wisely.

Some broader types of ETFs:

• Market ETFs: Buy all the stocks in a particular index like the Sensex and Nifty
• Bond ETFs: Invest into fixed income instruments like corporate bonds, government bonds (both state and central), bonds issued by banks, certificate of deposit, treasury bills etc.
• Sector ETFs: Designed to provide exposure to a particular industry, such as oil, pharmaceuticals, FMCG etc
• Commodity ETFs: Invest in the price of a commodity, such as gold, crude oil etc
• Style ETFs: Designed to track an investment style or market capitalization focus, such as large-cap value or small-cap growth
• Foreign market ETFs: Invest in foreign markets such as such as Japan’s Nikkei Index, Hong Kong’s Hang Seng index etc.

Characteristics of ETF:

• They are listed and traded on a stock exchange like common stocks. So, can be bought and sold at anytime of the day.
• ETF includes almost every investing asset class including commodities or currencies. It gives you exposure of any market, any sector in the world.
• Liquidity of ETF is very high and charge lower fees.
• Investors can place different types of order for buying ETFs like stop-loss order, buy on margin etc, as they are traded like stocks in market.

Best part of investing in ETF is, it gives you the flexibility to be any kind of investor that you want to be. It is very good investment instrument if you consider all factors to choose best ETF to achieve your investment goals.

Happy Investing!

An Exchange Traded Fund (ETF) is a basket of securities you can buy or sell through a brokerage firm on a stock exchange.

When you invest in ETFs your money is invested in a bunch of market securities which are a part of pre determined index. Unlike other mutual funds, ETFs experience price changes throughout the day. These changes in the price are dependent on the demand and supply of ETFs.

Advantages of ETFs are:

• Cost effective
• Diversification
• Passively managed

Risks associated with ETFs are:

• Liquidity
• Constant tracking is required
• Tracking error
• Unexplored potential