How ETFs Add Value to Your Portfolio

17 Nov 2022

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An ETF (exchange-traded fund) is a fund that is listed on the stock exchange. It can invest in equities, bonds, gold, currencies among other assets.

How ETFs work

Lets take an example of NIFTY 100 Index ETF. The ETF will mirror the Nifty 100 index by investing across the 100 companies in the index in the same allocation.

The ETF value fluctuates in line with the index value.

Core features of ETFs

  • Cost effective - expense ratios of the ETF are much lower than active funds
  • REAL TIME PURCHASE- you can make the most of market inefficiencies by buying intra-day instead of waiting for end of day NAV
  • Transparency - ETF costs, buy / sell quotes, portfolios are public knowledge
  • Passive strategy ETFs follow a passive strategy wherein it replicates an index and its value changes as per the movement of the underlying index.
  • Do ETFs merit a place in your portfolio?

ETFs have a role to play for the

  • Wide range of choices across assets (equity, debt, g old, real estate) 
  • Availability of variety of ETFs like index ETFs smart beta ETF international ETFs Gold ETFs 
  • Convenience in devising an entire / part portfolio of diversified assets
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