Know your investment: Investing in ETF Funds in India - Financing Panda: Latest News on Finance, Loan, Business


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Friday, July 26, 2019

Know your investment: Investing in ETF Funds in India

ETF isn’t a new concept. In fact, in the West, ETF is becoming a popular alternative to investing in conventional Mutual Funds. ETF funds in India are still considered to be in the nascent stages, even though they have been available for a couple of years now.

What is ETF?

ETF is a type of index fund. Index funds are like Mutual Funds, with one key difference. Instead of being actively managed by a fund manager, index funds let you follow the movements of an associated index.

In India, ETF index funds can follow indices like SENSEX, S&P, or Nifty. Unlike regular index funds, ETFs are exchange-traded funds. These funds invest in the set of stocks that comprise the index. So, just like the index, they change dynamically several times during the day. The NAV of ETF funds are indicative, because they trade in real time.

Difference between ETF vs Mutual Funds
  • ETFs follow a stock or debt index; the price of a commodity and the changes are reflected in real time.
  • They can be traded on stock exchanges.
  • ETF investments cost less since they are not managed by professionals and so there is no fee for fund managers.
  • ETFs are traded in the stock exchange in real time, so if you want to sell, you can do so immediately.
ETF Funds in India

ETF funds have not yet become a very popular investment option in India, for one reason. Most Mutual Funds in India are able to give better returns than ETF funds. A comparison between ETF and Mutual Funds in India and in the West shows that they are governed by different factors.

In mature markets like the US, Mutual Funds find it very difficult to beat their benchmark index. Global ETFs are able to pick from a wide variety of indices: like sector-based indices, emerging market indices, strategic indices, and countrywide indices. In India, there simply isn’t a variety like that to choose from.

We still have a number of stocks that exist outside of indices. Mutual Fund investment managers are able to identify hidden gems among these; this lets investors realise higher returns. This is why most people still invest in Mutual Fund.

Gold ETF - A good option to invest in ETF Fund

In India, while index-based ETFs haven’t become popular yet, commodity based ETF and Gold ETFs have found many investors.

Gold has always been a popular product in India, both as a possession and as an investment. In recent times, it has been one of the best performing asset classes, giving better returns than many equity or debt investments.

If you have a Demat account, you can buy and sell Gold ETF. Each Gold ETF unit generally translates to 1 gm of gold. You don’t get the physical gold, just a certificate signifying ownership. So, you don’t have to worry about storage, security or theft. Gold ETF is highly liquid because you can follow gold prices and trade immediately on the stock exchange.

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