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What is Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are the ideal funds for beginner investors invest in ETF offers numerous benefits such as abundant liquidity, low expense ratios, diversification, low investment threshold, a wide range of investments, and so on. The various features of invest in ETF funds make a perfect vehicle for different investment and trading strategies used by new investors.

What is ETF Fund is the basket full of stocks that reflects the composition of an index such as Nifty and Sensex. The price of invest reflects the net asset value of the stock basket in which the investor is investing. If you want to know what is ETF fund in simple words then we can say that it is similar to mutual funds. What is ETF funds are usually the Index Funds that are listed and traded on various exchanges such as stocks and even managed passively? The main aim of ETF investment is to track the relevant index and replicate them in returns.

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How to Invest in ETF?

You require to have a trading and Demat account with a stockbroker to know how to invest in ETF. There are three main parameters which the investor should lookout to know how to invest.

1. Tracking Error

Tracking error makes the deviation between invest in ETF return and Index return. This is one of the important performance parameters for the investor to know how to invest in ETF as they are actually investing in the index.

2.  Liquidity

This is also an important factor of what is ETF fund as, unlike mutual funds, ETFs are sold and bought in the stock exchanges. But if you find that invest in ETF is not very liquid then you will not be able to find enough buyers at the time of selling your ETFs.

3. Total Expense Ratio

Invest in ETF provides risk-free profits to the investors in return.

Types of ETFs Schemes

Some of the best ETF funds schemes are listed and explained further:

  •  Index ETF

Index ETFs are the most common and best ETF funds offering products. The main aim of this best ETF funds is to track a specific market index such as Nifty, Sensex, Nifty 100, BSE 100, etc. while investing in the index funds, you must expect to get the index returns that are tracked by the invest in ETF, there’s nothing more or less.

  • Bank ETF

Bank ETF is also one of the best ETF funds to invest in a basket of banking stocks that are particularly listed on the stock exchanges.

  • Gold ETF

Many investors buy gold in the form of Gold ETF as financial assets. The gold ETFs are the best ETF funds scheme offered by many banks and financial institutions. This best ETF funds scheme aims to track the gold price availing in the markets and even has the same value as the pure physical gold of 24 carats. The unit of gold in this best ETF funds is traded on the stock exchange similar to the share of a company.

  • Liquid ETFs

You can simply do ETF investment that is liquid as short-term government securities and that’s why this ETF is considered the best ETF funds in the market. You can call this best ETF funds the money or money market tool of short-term maturities. The main objective of these best ETF funds is to reduce price risks and enhance their returns.

  • International ETFs

The international ETFs mainly invest in foreign-based securities and one of the best ETF funds schemes that can track the global markets or the country-specific benchmark index. These best ETFs funds are great investment options to diversify your investment into foreign securities.

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Advantages & Disadvantages of ETFs

The main advantages and disadvantages of what is ETF fund are explained in the given table below:

Advantages of ETFs Disadvantages of ETFs
Investment can access too many stocks across various industries and businesses. Fees are generally high in the actively managed ETFs.
ETFs mainly focus on the targeted industries. There’s a lack of liquidity in the hinders transaction of ETFs.
There’s risk management in ETFs through diversification. Single-industry-focused on the limited diversification of the ETFs.
There are fewer broker commission and low expense ratios in ETFs.

ETF vs Mutual Fund Returns

The main difference between ETF vs Mutual Fund Returns are shown under the table given below:

Parameters

ETFs

Mutual Funds

Trading You can freely trade in the markets. In what is ETF funds, investors can easily buy and sells their ETF funds at their convenience. Investors can only buy and sell mutual funds after placing a request with the fund house and the NAV determines the market price of the mutual funds.
Portfolio Management In what is ETF fund, there is have passively managed portfolios. These funds track the index funds merely. Mutual funds are actively managed by a fund manager in what is an ETF fund.
Commissions ETFs are traded similar to other shares on the stock exchange markets. Consequently, investors have to pay the commission on-sell or purchase of any unit as the prevailing stock market rule. The mutual fund managers actively decide the investment on the behalf of investors. Hence, the expenses of the fund managers are higher. The fees are reflected in the mutual fund’s expenses ratio. This is the main reason for the higher expense ratio of a particular mutual fund.
Management fees ETFs don’t require active portfolio management as they only replicate and track the performance of the index. Hence, there’s low fund management and other expense fees in ETFs. The fund managers decide on the behalf of an investor actively. Therefore, the fund management expenses are usually higher than ETFs.
Liquidity Liquidity is higher in ETF since it is not connected to the volume of daily trading. It has lower liquidity as compared to ETFs.
Transferability A complication may arise at the time when an investor decided to shift their managed portfolios to another firm. They are also referred to as portable investments. Transferability is relatively complicated in Mutual Funds. An investor requires to close the position of its funds before transferring them into another firm. This might create a problem for the investors. As some of them ultimately realize that their investment may result in losses.
Lock-in period There’s no lock-in period in ETFs. ELSS has a lock-in period of a minimum of three years. While other mutual funds don’t comprise any lock-in period.

Hence, we came to know that both are quite similar and i.e, ETF vs Mutual Funds helps the investors to build diversified portfolios of investment. However, there are many factors that an investor must consider before choosing ETF vs Mutual funds. Some of the main factors that are included in what is ETF fund is listed below:

  • The risk tolerance level of investor
  • Liquidity of investment
  • Time horizons of investors
  • The tax-saving strategy
  • Financial goals of the investors, etc. 

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Nifty ETF Share Price

Nifty ETF share price in the scheme of open-ended large-cap equity schemes. The main investment objective of this Nifty ETF share price fund is to provide the returns before expenses that nearly respond to the total return of the Nifty 50 Index subjects to track its error. The Nifty ETF share price is benchmarked against the Nifty 50 Total Return Index.

List of Nifty ETF Share Price

The list of the latest Nifty ETF Share price is shown in the table given below:

SCRIP NSE Price BSE Price
UTI NIFTY ETF Share Price 1,816,05 1,805.65
TATA NIFTY ETF Share Price 178. 38 Not listed
SBI NIFTY ETF Share Price 176.10 Not listed
LIC NIFTY ETF Share Price 184.59 183.82
Kotak NIFTY ETF Share Price 181.54 181.65
INVESCO INDIA NIFTY ETF Share Price 1,880,00 Not listed
INDIABULLS NIFTY ETF Share Price 184.28 Not listed
IDFC NIFTY ETF Share Price 180.17 Not listed
ICICI Prudential NIFTY ETF Share Price 185.08 185.25
HDFC NIFTY ETF 184.71 184.61
BIRLA NIFTY ETF 19.10 Not listed
AXIS NIFTY ETF 181.77 Not listed

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Why Invest in ETF?

Several factors play a very crucial role in determining the future performance of a mutual funds scheme via tracking them. What is ETF fund helps to track the index funds that are benchmarking? So, if you aim for the index/market returns of your investment then invest in ETF may be a good choice.

  • Performance is the main focus

The indices are the method of constructions based on reducing the weight of underperformance and market capitalization in the index portfolio. Therefore, ETFs can also eliminate or reduce the weight of underperformance in their portfolios by extensions.

  • Unsystematic Risks

Mutual funds are subject to systematic and unsystematic risks. Whereas, invest in ETF actively managed all funds that are subject to market risks. ETFs generally do not have any unsystematic risks as they simply track the index. Hence, it is such a great investment option if you want to avoid unsystematic risks in your investments. 

  • Low cost

The expense ratio while Invest in ETF is much lower as compared to mutual funds. You can also get good returns while invest in ETF in long term. 

What are ETFs- FAQs

Q1. What are ETF Fund types?

Ans- There are five common types of ETFs:

  1.   Equity ETFs
  2.   Fixed/Bond Income ETFs
  3.   Currency ETFs
  4.   Commodity ETFs
  5.   Sustainable ETFs 

Q2. How to invest in ETF if you are a beginner?

Ans. You only need to have a Demat and trading account to have a good start in ETFS stocks. 

Q3. What is an ETF fund? & How long are you required to hold an ETF before selling?

Ans-  ETF fund is a mutual fund that usually trades on a stock exchange. You need to settle it for two days after a trade takes place. Whereas, the traditional open-ended mutual funds settle the next day of their purchase.

Q4. How to invest in ETF via phone?

Ans- You can easily invest in ETF via phone by the following steps given below:

  • First, you need to open a brokerage account online.
  • Once you’re done, then you can find and compare ETFs with screening tools.
  • Now, you can place the trade.
  • At last, just sit back and relax as you’re all done.

Well, it’s that simple and easy to process. 

Q5. Explain one differentiation between ETF vs Mutual Funds returns.

Ans-  ETFs track their underlying index with minimal tracking error. Whereas, the performance of Mutual Funds depends on the performance of its underlying assets.

Q6. What is ETF Fund? Are they good for long-term investment?

Ans- What is ETF funds are the collection of many securities that helps to track your assets.

ETFs can make a great, long, and tax-efficient investment.

Q7. What is an ETF fund and how is it different from index funds?

Ans- What is an ETF fund is a basket full of securities to track an underlying index. They usually contain investments such as bonds and stocks.

Index funds are generally referred to as mutual funds that track an index. However, invest in ETF funds tends to be more liquid and cost-effective as compared to index mutual funds. 

Q8. How to invest in an ETF account if I don’t have a Demat account?

Ans- You cannot invest in an ETF account if you don’t have a Demat and trading account. both are mandatory to open an account for ETF funds trading.

Q9. What is an ETF fund? Are stocks better than ETFs?

Ans-  ETF funds are the trade on an exchange just like replicating the performance and portfolio of other stocks.

ETF offers more advantages than stocks:

  • ETF will be the best choice when the returns in the stock sectors have a narrow dispersion.
  • ETF is again the best choice if you are unable to get any advantage through the knowledge of the company you invest in.

Q10. What is an ETF fund? Is it good for beginners?

Ans-  An ETF fund is just like a stock that is also known as a basket of securities and trades on the stock markets to earn maximum profits. It is an ideal trading fund for beginner investors as it offers various benefits such as abundant liquidity, low expense ratios, diversification, a wide range of investment choices, low investment threshold, and so on.

Marketvein Staff
Marketvein Staffhttps://www.marketvein.com/
Born libra, likes to lead from the front. Digital Marketing & Technology is his strength. He has pursued engineering. Travelling to new places & writing is his idea of fun. In his free time (if he gets some that is), he is seen donning the chef's hat at home.

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