What is an ETF, and how does it work?
ETFs (Exchange-Traded Funds) are the funds that trade on stock exchanges, typically tracking a specific index. They offer a bundle of assets, such as stocks, gold, or bonds, which you can buy or sell during market hours, just like individual stocks. The price of an ETF changes throughout the day based on the value of the assets it holds.
ETFs are similar to mutual funds because both allow you to invest in a collection of assets simultaneously. However, ETFs are more flexible since they can be traded anytime the market is open, while mutual funds are only priced once a day. Additionally, ETFs usually have lower management costs, making them a more cost-effective option.
When you invest in an ETF, you gain access to a diverse range of assets with one purchase, potentially lowering your risk by spreading your investments across different markets or sectors, as the value of the assets in the ETF, like stocks, bonds, or commodities, changes, the price of the ETF adjusts accordingly. This makes ETFs a convenient way to diversify your portfolio and manage risk effectively.
ETFs offer a flexible and cost-effective way to diversify across various market segments, making them a valuable tool in any investor’s portfolio. Whether saving for retirement, building an emergency fund, or working toward wealth creation, goal-based investing can help you structure your ETF strategy effectively.
However, it’s essential to understand your risk tolerance and investment horizon before choosing ETFs. An AMFI-registered mutual fund distributor or advisor can help you select the right ETFs that align with your objectives and ensure your portfolio is well-balanced for long-term growth. A trusted mutual fund distributor or advisor can support you in making informed, strategic investment choices.
Some examples of ETF are HDFC Gold ETF, ICICI Prudential Gold ETF, Invesco India Nifty 50 ETF, UTI Nifty Next 50 Exchange Traded Fund.
