Investment in exchange traded funds i.e. ETFs is increasing rapidly. If you are thinking of investing in this instrument, it is important to first understand why one should invest in ETF? ETFs are a type of mutual funds whose units are traded on the exchange.
There are many reasons to invest in ETFs. By buying ETFs, you invest in the shares of not one but various companies. For example, Nifty 50 ETF tracks this index. When you buy Nifty50 ETF, allocation is done among the 50 stocks included in that index on the basis of weightage in the index. Investing in many stocks instead of one or two stocks reduces the risk of investing in ETFs.
Why should one invest in ETF?
This diversifies your portfolio. When you invest in ETFs, you get units in return which are traded on the exchange. Therefore, these can be bought and sold anytime during intraday. In ETFs, you can buy and sell in real time of the market, whereas in mutual funds, the price of NAV is decided at the end of the trading. The biggest advantage of ETFs is lower expenses compared to active funds.
ETFs good for passive investors
The goal of active funds is to give better returns than the benchmark index, whereas ETFs are a method of passive investing that tries to replicate the performance of the benchmark index because ETFs do not need to be actively managed. Because of this, the cost of managing ETFs is low. In such a situation, ETFs can be a good option for passive investors.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO and Mutual Funds.) Before making any kind of investment, we check its return. Apart from the return, there are many other factors which have to be taken care of. While choosing ETF, you should know about its benefits. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
