Do you know what Exchange Traded Funds or ETFs are and what are their advantages? ETFs are baskets of securities (Indices) that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock. ETFs were first introduced in the US in 1933. 

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Features of ETFs: 

ETFs are considered to be a safer product for risk averse and first time investors who want market linked returns. 
ETFs have lower cost of transactions and annual changes compared to index funds. 
Index tracking has been widely acclaimed in practice and in theory as a winning strategy for long term investing 
As per the information on the NSE, it has been the experienced that globally, a majority of actively managed funds have underperformed their respective benchmarks over a long period of time. 

There are a variety of ETFs which are available on NSE for trading. Equity, Debt, Gold and International Indices ETFs are available. 

ETFs Scheme available on NSE are: 

  • Equity 
  • Gold 
  • World Indices 
  • Debt

Advantages of ETFs: 

ETFs provide investors a convenient way to gain market exposure viz. an index that trades like a stock. An investment in an ETF index product provides a diversified exposure to the market. 
It can be used as an investment option when the investors are flushed with funds or have idle cash and want to invest in a product tied to a market benchmarks like an index as a temporary investment. 
Investment managers who see regular inflows and outflows may use ETFs because of their liquidity and their ability to represent the market.

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It can be used as an an option by 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 can be sold short against long stock holdings as a hedge against a decline in the market or specific sector.