Every day, something new emerges in the world of investing. One such method is an ETF, or Exchange Traded Fund. Simply put, it’s a fund that trades on the stock market just like a company’s shares. The only difference is that it doesn’t hold shares from a single company, but rather shares, bonds, or other assets from multiple companies.
Investing in an ETF allows investors to invest in multiple companies at once. This reduces risk and increases the potential for returns.
The Origin of ETFs
ETFs originated in the United States in the 1990s, as an attempt to make investing accessible to the general public. They later became popular in many countries around the world.
ETFs were introduced in India in 2001 through the Nippon India Mutual Fund (formerly Reliance Mutual Fund). After that, gradually many more fund houses entered this field, and today it has become a reliable method of investment.
How to invest in ETFs?
Investing in ETFs is very easy. Below is a step-by-step procedure:
- Open a demat and trading account —
ETFs are listed on the stock market, so a demat and trading account are required to purchase them. - Select an ETF on the exchange —
Investors can choose the ETF of their choice by visiting the National Stock Exchange of India (NSE) or Bombay Stock Exchange (BSE). - Place an order —
Just like you buy shares, you can also buy ETF units. - Hold for the long term —
Investing in ETFs has the potential to generate better returns over the long term. Therefore, it is better to hold for a while rather than selling in a hurry.
Best ETFs in India
Many good ETFs are available in India today. Some popular ETFs are as follows:
Nippon India ETF Nifty BeES — Tracks the Nifty 50 index.
SBI ETF Nifty 50 — Contains shares of the country’s 50 largest companies.
ICICI Prudential Nifty Next 50 ETF — Tracks the Nifty’s next 50 companies.
UTI Nifty ETF — This is also preferred by many long-term investors.
(Note: Always consult your financial advisor before investing.)
What is the difference between an ETF and a mutual fund?
Points ETF Mutual Fund
Trading: Trades take place in real time on the stock market. Purchases are made at the end of the day’s NAV.
Method of Purchase: Invest directly from the AMC or online portal through a demat or trading account.
Expense ratio: Typically higher than for smaller ETFs.
Transparency: Complete transparency – holdings are visible. Information is updated periodically.
Liquidity: Can be bought and sold at any time, like shares. Selling may take time.
Conclusion
An ETF (Exchange Traded Fund) is an investment that holds a group of assets like stocks, bonds, or commodities and trades on the stock exchange just like a share. It allows you to invest in many companies or assets at once, which helps reduce risk.
ETFs are easy to understand, low-cost, and flexible, making them a great choice for beginners. By learning how ETFs work, knowing the different types available, and understanding their benefits, you can invest with more confidence. If you choose ETFs that match your financial goals and invest for the long term, they can help you grow your money safely over time. Start small, stay consistent, and focus on long-term growth to get the best results from ETF investing