Exchange traded funds are an investment option that are a collection of various assets such as bonds, stocks, commodities, etc. The trade on such funds can be done on any stock market exchange with the prevailing market prices, similar to how it is done for single stock.
There are a number of benefits when you invest in etf such as diversification of the portfolio of assets, reduction in the cost, liquidity similar to single stock, etc. Therefore, investors are now more focusing on such types of funds to boost their profitability and leverage other benefits.
In this article, we shall have a look into 5 major reasons why ETF investing is on the rise in India.
Let us know the reasons behind the rising popularity of ETFs for investment in India.
One of the main reasons ETFs are becoming more and more popular in India is that they are affordable. In comparison to ETFs, Mutual Funds will have a greater expense ratio because of more operational costs and managerial fees.
Whereas ETFs track the performance of a certain index and are passively managed. Because of the lower fees associated with this passive management strategy, ETFs are an affordable option for investors.
Also, investors who are always looking to cut costs will be more attracted to invest in ETFs.
ETFs offer a practical and effective means of achieving diversification, which is an important part of an ideal investment plan. ETFs distribute risk among a range of securities by holding a basket of assets that represents a stock index or a sector.
Due to a portfolio’s inherent diversification, investors’ portfolios are more stable and resilient against the adverse impacts of underperforming individual stocks.
ETFs satisfy investor expectations for transparency by frequently updating the performance of their holdings. Because of this transparency, an investor can make better decisions for investing.
Also, it provides flexibility to perform intra-trade transactions to gain profits from price movements in a day, which is not allowed in mutual funds. In mutual funds, an investor can only make transactions at the end of the day.
Similar to individual stocks, exchange-traded funds (ETFs) give investors the freedom to transact at market prices at any time throughout the trading day.
ETFs also provide exposure to a broad range of industries and assets, including international markets, giving Indian investors quick access to global opportunities for investments without the complexities of direct foreign investment.
For Indian investors, tax concerns are very important, and ETFs perform well in this regard. Compared with actively managed funds, exchange-traded funds (ETFs) often involve fewer transactions because of their passive nature.
As a result, investors have lesser tax obligations due to the reduced capital gains distributions. ETFs become a more attractive investment option as tax minimization can be one of the main objective for many investors.
In conclusion, a number of factors, including cost-benefit calculations, liquidity, diversity, transparency, and tax advantages, are contributing to the growth of ETF investments in India. Evaluating exchange-traded funds (ETFs) presents an exciting chance for potential investors in India to create a low-cost, tax-efficient, and diversified investment portfolio.
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