If You Don’t Know Anything About ETF, Don’t Worry In This Article You Are Going To Learn About What Is ETF ?, Types Of ETFs, ETFs vs Mutual Funds, ETFs vs Stocks And ETFs vs Mutual Funds Which One Is Better.
Before Going To Learn About All These Things, Firstly Let’s Learn About Who And When The ETFs Are First Introduced In Markets.
List Of Content
- When ETFs Are First Introduced In Markets
- All About ETFs
- ETFs vs Mutual Funds
- ETFs vs Stocks
- Types Of ETFs
- Advantages Of ETFs
- Disadvantages Of ETFs
- Which One Is Better ETFs Or Mutual Funds
When ETFs Are First Introduced In Markets ?
In 1990 The Worlds First ETF Was Introduced In Canada. Transforming The Investment Landscape and Offering The Advantages Of Pooled Investing And Trading Flexibility. Since Their Introduction ETFs Have Grown To Become One Of The Most Popular Products In The Global Investment Industry.
In The U.S The First ETF Was Launched In 1993 Named As SPDRs ETF To Track The S&P 500 Market Index. And Now the U.S Is The Largest Market For ETFs.
ETFs In India
In India, The First ETF Was Introduced In 2001, When Benchmark Mutual Fund Launched The Nifty ETF Fund ( NIFTYBEES ) With A Objective To Track The Performance Of The Nifty 50 Index.
In India, The ETF Industry Is Starting To Put Up Its Pace. Since 2015 The ETFs have Not Only Become Much Bigger But Also More Diverse.
What Is ETF ?
ETF Stands For Exchange Traded Fund, ETF Is An Investment Fund Which Is A Combination Of Both Mutual Fund And Stocks.
Like Mutual Funds Here Also People Put Their Money In A Fund That Invests In Different Things Like Stocks, Bonds, Gold, And Other Securities Etc.
Also Like Stocks, ETFs Can Be Bought And Sold In Exchange At any time During The Day.
For Example, NIFTYBEES ETF Underlying Asset Is NIFTY 50, Which Means If Nifty 50 Increases The NIFTYBEES ETF Value Also Increases And Vice Versa.
There Are About 85 Different ETFs Trading In NSE. To Check This ETFs
Most ETFs Track An Index, So It Will Not Outperform Or Underperform The Index. ETFs Are Only Rebalanced When The Index Is Rebalanced.
ETFs vs Mutual Funds [ What Is ETF ]
Both Mutual Funds And ETFs Are Baskets Containing Different Types Of Securities. Such As Stocks, Gold, Or Bonds.
Mutual Funds Are Managed By Professional Fund Managers That’s Called Active Management, So They Charge Some Fees Or Expense Ratio Which Are About 1% To 2%, It Was Way Higher Than ETFs.
As Most ETFs Track An Index, So There Is No Need Of Active Management, Because What Ever The Stocks Are There In That Index, Only In That Index Stocks The Funds Will Be Invested And The Funds Will Be Equally Divided As Per The Weightage Of Stocks. But It’s Not The Case In Mutual Funds Because The Fund Managers Do Research And Will Invest The Funds According To Their Research.
To Buy ETFs Demat Account Is Required, For Mutual Funds Demat Account Is Not Required.
ETFs Are Bought Direct From Stock Exchange But Mutual Funds Are Bought From Asset Management Company.
ETFs Have Higher Liquidity Compared To Mutual Fund.
NAV ( Net Asset Value )Will Fluctuate Throughout The Day In ETFs But In Mutual Funds, NAV Is Allocated At The End Of The Day.
Mutual Funds Had Given More Returns Then ETFs In The Last One Year.
ETFs vs Stocks [ What Is ETF ]
Like Stocks, We Can Buy And Sell ETFs On Exchanges. Every ETF Will Have Its Symbol Or Name, So We Can Keep Track Of The Price Of ETF Same As Stocks.
But The Main Difference Is If We Invest In Stocks Means It Represents Only One Company In Which We Are Invested, But In ETF It Consists Of Different Stocks. So We Can Have The Advantage Of Diversification.
For Example, If We Invest In Nifty PSU Bank ETF ( Nifty PSU Bank Is Underlying Asset, The Symbol Or Name Of ETF Maybe Different Like, For Nippon India Fund House It Is PSUBNKBEES And For Kotak Mahindra Fund House It Is KOTAKPSUBK ) It Will Have All PSU Banks.
ETFs Are Also Focused On Certain Sectors Also.
That Diversification Of ETFs Can Help Reduce Portfolio Exposure To Risk.
Types Of ETFs :
In Equity ETFs The Funds Are Invested In Equity Segment. Equity ETF Track The Indices Like Nifty 50, Nifty Bank, Nifty PSU Bank, Nifty MIDCAP 100, etc.
These Funds Include Physical Gold Assets. It Makes An Investor Owner Of Gold On Paper. Gold ETFs Track Physical Gold Prices.
Gold ETFs Have Benefits Over Physical Gold, Unlike Physical Gold The Gold ETFs Are Easy To Purchase And We Can Buy And Sell Gold ETF Anytime During The Day.
These ETF Funds Are Invested In Debt Securities Such As Debentures, Government Securities, etc.
In Simple Words, These Funds Are Given As A Loan To The Government.
So Debt ETFs Are Less Riskier Than Equity ETF. The Price Fluctuation Is Also Very Minimal.
An International ETF May Track Global Markets Or Track A Country-Specific Index.
Advantages and Disadvantages Of ETFs
The Main Advantage Of ETFs Is, It Is A Combination Of Mutual Funds And Stocks. So That We Can Diversify Our Portfolio At The Same Time We Can Trade These ETFs Like Stocks On The Exchange.
ETFs Are Passively Managed, That’s Why the Expense Ratios Are Very Low Compared To Mutual Funds.
The Disadvantages Of ETFs Are, As They Are Passively Managed And Also Most Of The ETFs Are Index-Based ETFs. So If Any Stock Underperforms In That Index. We Can’t Remove The Stock Unless It Is Removed From The Index.
But It’s Not The Case With Mutual Funds, As Mutual Funds Are Actively Managed. The Fund Manager will Remove The Stocks Which Are Underperforming and Will Add New Stocks.
The Other Disadvantage Is, In Mutual Funds, The Fund Manager Can Shuffle The Stocks According to News Also.
Like If The Budget Is Favoring The Real Estate Sector Then The Fund Manager Will Add More Real Estate Sector Stocks, But It Is Not Possible In the Case Of ETFs.
ETFs vs Mutual Funds Which One Is Better.
Mutual Funds Are Better Than ETFs. Because Mutual Funds Was Given Higher Returns Compared To ETFs.
The Main disadvantage Of ETF Is, Most ETFs Track Indices. So If Any Stock Underperforming Also They Cannot Remove It Unless It Is Removed From The Index.
For Developed Economy Countries, The ETFs Are Better Because There Is No Scope For Fund Managers To Find The Good Undervalued Stocks. And Also In Developed Economy Countries, Mutual Funds have Underperformed The Indices.
So there Is No Need To Invest In Mutual Funds As They Are Underperforming the Indices and Also Charging The Extra Burden Of Expense Ratios.
But It Is Not The Case For Developing Economy countries Like India. Because There Is A Lot Of Scope For Companies And Also Fund Managers Of Mutual Funds Can Do Lot Of Research To Find The Good Undervalued Or The Stocks Which Will Have Scope In Future.