Fundamentals of exchange traded funds
Dear investors,Let’s start with what an ETF is.ETFs or Exchange Traded Funds are like mutual funds that are traded on the exchange like stocks.With an ETF, you can buy and sell a basket of stocks without having to individually select different stocks for trading. Which is why it has evolved as one of the most popular forms of passive investing in India.Unlike the NAV in mutual funds (where it is calculated at the end of the trading day), the price of each unit of the ETF is determined by the price movement of the indices plus demand and supply in respective ETFs.
For example: Nifty BeES (India’s first ETF) tracks the movement of the Nifty 50 Index. That means the fund manager buys and sells stocks from Nifty 50 and hence, the returns are similar to those of the index.
What makes ETF so popular amongst investors?
Move with the index
You can buy and sell ETFs throughout the trading day like stocks to benefit from the index price movements.
Diversify with a basket of shares
Every ETF comes with a bunch of stocks from different companies and sectors so you can diversify your stocks portfolio in one go. ETFs also allow buying and selling of fractional shares that helps in diversifying further.
Lower expense ratio
The expense ratio of an ETF is usually lower than most regular mutual funds (especially actively managed mutual funds).
Buy and sell anytime
Since ETFs are traded on the exchange like stocks, you can also buy and sell ETFs anytime, just like stocks.
Types of ETFs you’ll find on Groww:
Equity ETFThese are funds that invest in shares and other equity of various companies. They track the movement of stocks from particular sectors and/or industries.
Gold ETFGold ETFs invest in Gold Bullions, which let one own real gold in a non-physical form. It also limits issues with owning physical gold such as storage and security, while adding gold to their portfolio.
Debt ETFThose dealing with fixed income securities such as bonds and debentures are called debt ETFs.