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What are ETFs and benefits on investing in ETFs

1 Min 01 Aug 2021 0 COMMENT

Exchange Traded Funds or ETFs are the basket of stocks which track the indices like Nifty or invest in an underlying asset like Gold. ETFs are listed on the exchanges and traded like shares. You can buy and sell ETFs on stock exchanges at the market-determined prices.

How do ETFs work?

ETFs typically mirror a particular index. For instance, if an ETF is mirroring the NSE Nifty index, it would have the same 50 stocks in the same proportion that Nifty has.

Features of ETFs

  1. ETFs invest a majority of their assets in securities of the index or an underlying index it is mirroring.
  2. The most common types of ETFs available in India are Equity ETF, Gold ETF, and Debt ETF.
  3. Good ETFs track their underlying index as accurately as possible. An ETFs ability to match an index’s return is measured by a metric called tracking error.
  4. ETFs are passively managed because they simply have to mirror an index and do not require active stock selection.

Benefits of Investing in ETFs

  1. Cost Effective:

    Since ETFs are passively managed, they are deemed cost efficient.
  2. Low Expense Ratio:

    They have significantly lower expense ratios than actively managed funds.
  3. Highly Liquid:

    ETFs are highly liquid, since they are publicly listed and traded on exchanges.
  4. Broad Portfolio:

    ETFs allow you to invest in a broad portfolio of stocks that make up an index.

How to invest in ETFs?

Investing in ETFs is easy. You can invest in ETFs through your online trading account, offered by reputed brokerage firms like ICICIdirect. You can buy and sell them at prevailing market price in real-time during market hours.