Exchange traded funds or ETFs have become quite popular in India over the last few years. ETFs are passive investment instruments that track and replicate the performance of a market index like Nifty 50 or Sensex. They provide diversification at low costs compared to actively managed mutual funds. ETFs can be a great addition to one’s investment portfolio for long-term wealth creation.
Choosing the right ETFs
With the growing popularity of ETFs in India, there are now over 100 ETFs available from various asset management companies. It is important to choose ETFs that match your investment goals, time horizon and risk appetite. Broad market ETFs like Nifty BeES from Reliance that tracks Nifty 50 can provide stable returns over the long run. Sectoral ETFs like Bank BeES from Reliance that tracks banking stocks allow exposure to high growth sectors. There are also ETFs based on themes like consumption, dividends, ESGs etc. Review historical returns across market cycles while selecting ETFs.
Opening a demat and trading account
To invest in ETFs, you need to open a Demat and trading account with a brokerage firm. Most leading brokers offer the facility to invest in ETFs online. You can open an account digitally in a few days by submitting KYC documents. The broker will provide a trading platform and mobile app to buy and sell ETF units conveniently. Your ETF units will be credited and held in Demat form.
Placing your first buy order
Once your Demat and trading account is opened, you can start purchasing ETFs of your choice. Decide the ETF scheme and the amount you wish to invest based on your financial goals and risk appetite. Place a buy order on the broker’s trading platform or app by entering details like ETF name, number of units and order type. You can choose from market order to buy at current market price or limit order to buy at a predefined price.
Monitoring and managing your ETF investment
Track NAVs and returns of your ETF investments vis-a-vis their benchmark index using tools on the broker platform. Rebalance your portfolio from time to time based on changing market conditions and your revised investment strategy. You can place additional buy orders or sell existing ETF units on the platform itself to book profits or cut losses. Set SMS and email alerts for key events like dividends, bonuses, splits etc. related to your ETF investments.
Benefits of ETFs
ETFs offer several benefits that make them attractive investment avenues.
- Diversification: Investing in a single ETF allows you to gain exposure to a basket of securities, such as the Nifty 50. This can help to reduce your risk by spreading your investment across a variety of assets.
- Low cost: ETFs typically have lower expense ratios than active mutual funds. This means that you keep more of your investment returns.
- Liquidity: You can buy and sell ETFs at any time on an exchange, just like stocks. This gives you the flexibility to sell your investment if you need to, or to take advantage of market opportunities.
- Transparency: ETFs are required to disclose their holdings on a regular basis, just like mutual funds. This makes it easy for you to see what you are investing in.
- Tax efficiency: ETFs are taxed more favorably than active funds. This can help you to keep more of your investment returns.
- Convenience: You can invest in ETFs online through a broker, making it easy to get started.
With the right strategy, ETFs can be a smart way to participate in India’s capital markets. Do your own research, consult experts and invest wisely. Over the long term, ETFs can create significant wealth for your portfolio.