What is an ETF?
An exchange-traded fund (ETF) is a passive investment option that primarily invests money on behalf of investors into a basket of equities, commodities, or other assets. As most of them track a specific index and are passively managed, their returns are generally similar to the indices.
ETFs are traded on a stock exchange like any other stock. Therefore, to buy and sell them, one must have a demat and trading account.
Types of ETFs
There are six types of ETFs in India, details of which are as follows:
- Equity ETF: These ETFs invest in a basket of stocks of a particular index.
- Debt ETF: These ETFs invest in a basket of debt securities.
- Commodity ETF: This category of ETF invests in particular commodities such as gold, silver, etc.
- International ETFs: These ETFs invest in the equity markets of foreign countries.
- Thematic or Sectoral: When an ETF invests its money in equities associated with a particular sector or theme, it is known as a thematic or sectoral ETF.
- Smart Beta ETF: The smart beta ETFs primarily invest their money according to different strategies, such as picking indices with low volatility, high-momentum or value characteristics.
Benefits of Investing in ETFs
The significance of investing in ETFs is as follows:
- Cost Efficient: Investing in ETFs is very cost-effective as they generally have a lower expense ratio than actively managed funds.
- Transparency: ETFs provide transparency as their performance can be easily judged by comparing it to the index or commodity they track. Moreover, the ETFs invest according to a specific mandate and their holding information is available publicly; therefore, an investor is fully aware of where their funds are invested.
- Diversification: You can easily diversify their investment portfolio using an ETF as they invest your money in a basket of securities.
- Liquidity: ETFs are traded on the stock exchange and therefore provide liquidity to investors.
5 Reasons to Invest in ETFs with Pocketful
There are various reasons why one should invest in ETFs with Pocketful; a few of such reasons are mentioned below:
- No Brokerage: Pocketful allows investors to invest in ETFs without paying any brokerage as it offers zero brokerage on delivery trades.
- Easy Execution: Pocketful mobile application has a user-friendly interface, allowing you to execute orders in just one click.
- Pledging of Shares: You can easily pledge ETFs through the Pocketful application and get margin.
- Advanced Technical Tools: Pocketful offers technical tools that can help you analyze the market trends better and make an informed investment decision.
- Zero Account Opening Charges: Pocketful offers you to open your demat account without paying any charges on it.
Frequently Asked Questions (FAQS)
How to select ETFs?
ETFs can be selected for investing based on various parameters such as low tracking error, expense ratio, underlying assets, etc.
How to select an ETF Platform for investment?
You must check whether the platform is compliant with the regulations specified by SEBI. Moreover, your trading platform must offer low brokerage, user-friendly interface and technical analysis tools.
Which is better, an ETF or a mutual fund?
ETFs and mutual funds differ on parameters such as risk, liquidity, expense ratio, and fund management. Therefore, the selection between the two depends on the individual’s choice and investment objective.
Is investing in an ETF safe?
Yes, investing in an ETF is a safe option and is suitable for investors who are conservative in nature but want to invest in equity, as ETFs tend to replicate the indices which they follow and offer instant diversification.
Do ETFs pay dividends in India?
Yes, ETFs pay dividends if their underlying stocks declare dividends.
Which ETF gives the highest return?
Different ETFs outperform each other at different times because they track different underlying assets that react uniquely to market conditions. However, it is not advisable to invest only based on past returns.
How does an ETF work?
ETFs are managed by asset management companies, which accumulate funds from the investors. Then the fund manager passively invests the amount into a basket of securities same as that of index to generate similar returns.
Does an ETF have a tax benefit in India?
ETFs are taxed based on their underlying asset. Equity-oriented ETFs are taxed according to regulations for equity capital gains, while debt-oriented ETFs are taxed under the taxation applicable to income from debt securities.
Are ETFs traded in India?
Yes, there are various ETFs offered by asset management companies that are traded in India.
Can I sell an ETF anytime?
Yes, you can sell at any time during the trading hours on the stock exchange.
Is there a minimum ETF investment amount?
There is no minimum investment specified to invest in an ETF as the amount depends on the per-unit price of the ETF.
How can I track my ETF investments?
One can easily track their ETF investment on the mobile application or web platform provided by the Pocketful.
