ETFs are one of the cheapest way to get broad exposure to an asset class
What is an ETF?
An ETF, or an Exchange Traded Fund, is a type of investment fund, which tracks an asset(s), a basket of stocks or an index. They’re called exchange-traded because they have shares that you can trade on the stock exchange throughout the day. They tend to be (but aren’t always) simple, low cost and passive.
What kinds of ETFs exist?
Several kinds, tracking a whole range of assets. The most common ones are:
How are ETFs different from Mutual Funds?
The key difference between an ETF and Mutual Fund is the management style. ETFs usually are passively managed, which means the underlying funds passively trade an index of stocks or other assets (like bonds or gold) based on preset rules. This is different from a mutual fund where the portfolio manager makes active investment decisions.
Because passive ETFs don’t need analysis or much management, they tend to have low costs and hence lower fees compared to mutual funds.
Another important difference is that you can trade an ETF any time of the day, while mutual funds can only be bought or sold at the end of the day. All investors that place an order to buy or sell mutual fund holdings on any particular day will get the same price for their trade.
ETFs are getting increasingly popular, as historical data suggests that on average passively managed index funds have been outperforming actively managed funds.
Why do fees matter?
Paying a higher fee can quickly add up, especially if the fund is not outperforming as much as the extra fee it is charging compared to a benchmark ETF. As an example, If you paid 0.30% fees per year rather than 1.50% p.a., after 5 years you will be 6% better off. That is more than 3 years’ worth of SPX dividends. Sort of an obvious choice, we say. No wonder passive ETFs are surging in popularity.
In fact, more money is now managed in passive rather than active US equity funds. No one is telling you yet that agar Mutual funds sahee hai, toh ETFs aur bhi sahee hai (sure, mutual funds are good but ETFs are even better!!).
How can you invest in low-fee global ETFs like the S&P 500 from India?
You can now invest in ETFs listed in the US through your Winvesta account. We currently offer over 70 ETFs on our platform, carefully selected to give you a wide exposure to the most common investing strategies or specific themes/sectors.
Some of the ETFs you can trade FREE are:
Besides these, there are many other ETFs that you can access on our platform to build your global investment portfolio.
In these challenging times of lockdown and quarantine, everything around us is at a literal standstill, including our stock market. It’s not a surprise that the Indian markets are currently witnessing massive volatility due to the Covid-19 pandemic. Many of us now wish they had diversified their portfolio, or are looking for efficient ways to diversify it now.
Diversification is an investment strategy that recommends owning several investments that tend to perform well at different times to reduce the effects of market fluctuations. In simple terms, don’t put all your eggs in one basket. But then how do you choose different baskets?
Rukesh Reddy, Director of Digital Transformation at Citibank in New York, talks about why every investor needs to lean heavy on software companies while building an investment portfolio.