Mutual Funds

How to Invest in Best ETF Funds in India

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Do you want to invest in the stock market but don’t want to make active decisions? Then you should consider ETF investing.

ETF investments track the performance of an underlying index or asset. This can include NIFTY, SENSEX, gold etc. It distributes its funds based on that index or asset. Investors like Warren Buffett recommend ETF funds as the best option for people looking to build a good investment portfolio.

Here, we will provide you with the best ETF funds in India, along with a complete guide on what ETF funds are and how to start with ETF Investing.

What are ETF Funds?

ETFs, or exchange-traded funds, are a type of mutual fund that trades on the stock exchange just like a stock.

In contrast to mutual funds, ETFs can be bought and sold on a stock exchange just like any other stock. ETF funds mirror a specific index, industry, commodity, or asset class performance. An ETF can be designed to follow the price of the underlying asset.

Investors can purchase and sell shares of ETF funds at any time during the trading day. That might have both positive and negative effects on the share price. ETFs are popular for their low fees.

If you want good returns that exceed those of fixed-income investments such as CDs and money market funds, you should consider investing in the best ETF funds. But you should do ETF Investing only if you want to invest with a time horizon of at least five years.

History of ETFs

In the past two decades, ETFs have gained popularity due to their low costs and high liquidity. In 1993, State Street Global Advisors introduced the Standard & Poor’s Depositary Receipts, the first U.S. exchange-traded fund (ETF).

It has a whopping $255 billion in assets under management. This ETF remains the world’s largest and most traded.

Why shall you put money into ETF Funds?

  • ETFs are preferable

The success of a mutual fund scheme is primarily determined by elements like the track record of the fund manager, the AMC, and the long-term performance of the scheme. Finding a fund with a probability of good performance in the future requires skills and analysis.

ETFs track the indices. ETFs could help your portfolio track an index or the market.

  • Performance is emphasised

The market capitalisation-based structure of the index eliminates or reduces the impact of low-performing stocks in the index portfolio. As a result, ETFs also drop down or at least reduce their low-performance stock holdings.

  • Risks

Mutual fund investments face systemic and unsystematic risks. Stocks are volatile. Actively managed ETFs and mutual funds carry market risks. Unsystematic risk is a company or industry’s unique risk.

Mutual funds spread their assets across sectors and market segments to reduce systemic risk. Actively managed funds may invest more in shares than the index. Index-tracking ETFs minimise unsystematic risk.

  • Expense Ratio

ETFs have lower expenses than mutual funds. ETFs can have expense ratios as low as 0.25%, compared to mutual funds’ 1.5% – 2.25%. Mutual funds may not outperform ETFs in the long term unless they perform exceptionally well.

ETFs are simpler than actively managed funds. However, the fund’s historical performance, investment plan, market response, etc., are some of the concerns. Choose a cheap index ETF to track.

How to select the best ETF funds?

There are three things to take into account when doing ETF investing: –

1. Expense Ratio: As ETFs track a particular index or asset, their expense ratio is lower.

2. Tracking Error: A tracking error occurs when an ETF’s return differs from the index return. This is an important indicator of success since, as an investor, your money ultimately goes to the index.

3. Liquidity: ETFs must have adequate liquidity because they are traded on stock exchanges, unlike mutual funds. If an ETF fund is not very liquid, you can have problems selling your shares when you try to locate enough buyers.

How to Buy the Best ETF Funds in India

ETF Investing has become very simple as multiple trading platforms are available to investors. Following is how you can start investing in the best ETF funds.

  1. Decide the Medium:

Most online brokerage platforms and investment applications offer access to ETFs. In addition, most of these platforms allow you to purchase and sell ETFs without paying commissions to the platform providers.

However, just because an ETF can be bought and sold without incurring commissions does not mean that trading in the ETF is cost-free. You might find differences in services between those who charge and those that don’t.

  1. Learn about ETFs:

Research is important for investing in the best ETF funds in India. In today’s markets, investors have multiple options. However, when doing your homework, remember that ETFs are not the same as stocks or bonds.

  1. Ask Questions:

If you invest in an ETF fund, look at the bigger picture. Analyse the industry and trends. While conducting your study, ask yourself the following questions:

  • What is your holding period?
  • Do you intend to generate income from your assets or grow wealth?
  • Do you have favourite industries or types of investments?
  1. Think about your Trading Plan:

Expanding your investment fees over time is a helpful trading approach if you are a new investor in ETF funds. This is because it guarantees a disciplined (impulsive or volatile) attitude to invest and helps to average out returns over time.

Final Thoughts

The above information provides a good understanding of ETF investing. Experts from Piramal Finance provide a detailed analysis of your Demat account. They can offer professional advice on investing and trading, so if you’re unsure, you should get in touch with them. Contact Piramal Finance for a collateral-free personal loan to start your business in ETF investing and funds trading.