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Business News/ Money / Personal Finance/  What are exchange traded funds and why should you invest in them?
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What are exchange traded funds and why should you invest in them?

Exchange traded funds can be traded like stocks at a trading platform. As a result, they are liquid and dynamic in nature, and have a low expense ratio.

There are several categories of exchange traded funds such as stocks, commodities, currencies and bondsPremium
There are several categories of exchange traded funds such as stocks, commodities, currencies and bonds

Exchange Traded Funds, or ETFs, are mutual funds that are tradeable in the stock markets just like stocks. And just like a mutual fund, they track an index, sector, commodity or asset.

Earlier ETFs were restricted to institutional investors alone but they have now become quite popular among retail investors also. Also, there are numerous options of ETFs in the large cap space such as Nifty Next 50 ETF.

In midcaps, there are Nifty Midcap 100 ETF and Nifty Midcap 150 ETF. There are thematic ETFs also which include banking ETFs, Nasdaq 100 ETFs, among others.

Why should you invest?

Since exchange traded funds can be bought and sold like stocks, they are liquid and dynamic in nature. They can be traded in the real time on a stock market, whereas mutual fund units can be transacted by investors via fund house only at the day’s closing price.

Additionally, ETFs have a low expense ratio.

“One of the major advantages of investing in ETFs is the convenience they offer of investing in an index fund via mutual funds which are tradeable. So, it’s the operational aspect of investing which makes them distinct from vanilla funds," says Renu Maheshwari, Registered investment advisor and Co-founder of Finscholarz Wealth Managers.

ALSO READ: ETFs: What are the types of Exchange Traded Funds? A primer

In India, the ETF landscape started to gain traction since 2015 and has swelled bigger. AUM for ETFs stood at Rs 5,400 crore in Dec 2014 and has grown to Rs 5,25,109 as on April 30, 2023, shows the latest AMFI data.

Categories of ETFs

There are several types of ETFs and they deal in various categories such as stocks, commodities, currencies and bonds.

There are 13 gold ETFs that have total AUMs of Rs 22,950 crore as on April 30.

Additionally, there are 160 other ETFs which have total AUMs of Rs 5,02,160 crore, out of which Rs 6,790 crore were added in the month of April alone.

Around one and a half years ago, market regulator created a new category of silver ETFs and during this period, their assets have reached Rs 1,800 crore.

In April alone, one gold ETF (DSP gold ETF) and one silver ETF (UTI silver ETF) were rolled out for public subscription.

Before the launch of Silver ETFs, fund houses were permitted to launch ETFs tracking gold. Gold ETFs have assets under the management of Rs 22,737 crore at the end of March 2023.

 

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We explain silver ETFs here.
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We explain silver ETFs here.

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Published: 23 May 2023, 09:17 AM IST
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