Why Exchange Traded Funds are interesting investment option? See these 6 applications of ETFs

The Exchange Traded Funds (ETFs) often make an interesting investment option. Due to the unique structure of ETFs, all types of investors, whether retail or institutional, long-term or short-term, can use it to their advantage. Those who are interested in investing in ETFs can login to the official website of the National Stock Exchange (NSE) at nseindia.com for any queries and details.

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Recently, NSE has tweeted from its official Twitter handle about investing in ETFs. The tweet said, "The wide variety of exposure that ETFs offer makes them an interesting investment option.  Learn more about them here - nseindia.com/products-"

The post further said that ETFs are highly flexible and can be used as a tool for gaining instant exposure to the equity markets, equitising cash, or for arbitraging between the cash and futures markets.

Now, the interested investors willing to invest in ETFs must be aware of the application of the ETFs. They are as follows:

1) Efficient Trading: ETFs provide investors a convenient way to gain market exposure viz. an index that trades like a stock. In comparison to stock, an investment in an ETF index product provides diversified exposure to the market. Depending on the index, investors may obtain exposure to countries/ markets or sectors.

2) Equitising Cash: Investors with idle cash in their portfolios may want to invest in a product tied to a market benchmark like an index as a temporary investment before deciding which stocks to buy or waiting for the right price.

3) Managing Cash Flows: Investment managers who see regular inflows and outflows may use ETFs because of their liquidity and their ability to represent the market.

4) Diversifying Exposure: If an investor is not sure about which particular stock to buy but likes the overall sector, investing in shares tied to an index or basket of stocks provides diversified exposure and reduces stock-specific risk.

5)Filling Gaps: ETFs tied to a sector or industry may be used to gain exposure to new and important sectors. Such strategies may also be used to reduce overweight or increase an underweight sector.

6) Shorting or Hedging: Investors who have a negative view on a market segment or specific sector may want to establish a short position to capitalize on that view. ETFs may be sold short against long stock holdings as a hedge against a decline in the market or specific sector.

In case of any further queries and details, the prospective investors can login to the official NSE website at nseindia.com.