ETF — Extraterrestrial Fund?
ETF is the new animal in the town. As the world goes digital, people would like to invest on the go and track investment from anywhere. ETF is a convenient digital solution that takes a few minutes to order the investment as you nibble with your ‘swiggy’ order. Let’s have a close encounter of the first kind to know it better
- Introduction to Index Fund & ETF
- Why ETF
- Variance Analysis
- Trade volumes of ETF
- Ready Reckoner & Summary
ETFs are nothing but a special purpose vehicle that has a basket of securities that are traded, like individual stocks, on an exchange. Unlike mutual funds, ETFs can be bought and sold throughout the trading day like any stock.
ETF in US Markets
It was introduced in the USA in 1993. Though it took some years to attract public attention it made a wave in the last 2 decades. The most popular ETFs include
- SPDR — $278 billion
- Vanguard — $113 billion
- QQQ — $ 76 billion
- EEM — $ 35 billion
This trend is catching up with other emerging markets in Asia such as Japan, Hong Kong, and India now for its efficacy.
ETF in India
The Index Funds and ETFs have grown in popularity amongst investors thanks to the ease of investing, close to market returns, and cost optimization. Given the fact that the Indian economy is poised to grow at a much faster rate than most global economies, it provides a great opportunity to participate in the growth story, especially through equities.
The best and easy way to participate will be index funds and Exchange Traded Funds (ETF). ETF offers a great starting point to invest in Equities and for beginners and many trust and institutions, it provides an excellent avenue to park their investment to generate the alpha in the portfolio.
Globally Pension and retirement funds invest majorly in Index or ETF funds and it is soon catching up in India with allocation to Equity becoming the norm in the changing context of Investment.
Index Fund has been there for close to 20 years in India now. However, the trends in investing picked up with institutions and individual investors were able to see the merit in investing in a basket of stocks or indices instead of a single or a bunch of stocks.
- Why ETF?
They have been introduced into the market recently. A sneak peek into the Index Fund and ETF to know how they stack up will throw some valuable insights to make your decision on investing in Equities the right way
They offer the convenience of holding your investment in De-mat mode. They are traded in exchange and are easy to access and invest in. Some of the key highlights of ETF is
- Lower Annual expenses compared to Mutual funds
- Index tracking: The best possible strategy to participate in the market for long term investing
- ETF gets an edge over Index Fund as they don’t have any issuance cost and fund expenses are much lower and have lesser tracking error when compared to the benchmark
While the convenience of investing does exist in ETFs, you need to make your choice in selecting the right ETF and create an ideal mix to suit your profile
If you are a seasoned investor in stocks and MF then you can proceed otherwise seek your financial advisor's help before you take the plunge