When you are young, investments may not be on your bucket
list. Instead, you’re probably planning your dream car, an international trip or even a beautiful home! But did
you know investing from an early age can be the means to reach these goals?
In your twenties, time is a valuable resource that you
can use for investments. It's because the potential to generate profits increases the longer you keep your
investments. But how do you begin investing? If you are a young adult looking to invest, ETFs can be a good
place to start. These investment vehicles can, even with a small investment, reflect the market growth on your
portfolio positively over a period of time.
But what are ETFs and why should you consider investing
in them? Let’s find out.
Introduction to ETFs
ETFs, or exchange-traded funds, are collections of
investment assets that tracks an underlying index. For instance, a Nifty 100 index contains stocks of top 100
companies in India based on market capitalisation. An ETF that tracks an index will include the same stocks in
the same proportion as the index itself.
Exchange-traded funds (ETFs) have a variety of advantages
that can make them your preferred investing instruments: -
Low cost
Worried about not having a large sum of money to start
investing? ETF Investment can be your solution, ETFs are passively managed funds, i.e., they track the
underlying benchmark index rather than trying active stock picking or market timing. Thus, they comparatively
have a lower expense ratio. Moreover, the minimum one has to pay is the price of one unit of ETF to start with.
Hence, ETFs can be relatively beneficial as they can be manageable on your pockets.
No prior knowledge or expertise
required
Now are you wondering if you would need to be a stock
market expert before starting an ETF investment? While it is always good to have a prior understanding of how
the stock market works. ETFs are beginner-friendly investment instruments, Investing in ETFs is relatively easy,
even with low knowledge. As they just replicate the performance of its underlying benchmark index, i.e., they
invest in the same stocks and in the same proportion as its underlying index. Thus, in ETF investments you need
not worry about when, where and which stock to Invest in.
Portfolio diversification
Another benefit of ETFs is that they allow you to invest
in various asset classes like Equity, Commodities like Gold and Silver and Money market instruments
like short-term maturity instruments such as Tri-Party Repos (TREPS*), Government Securities, etc. Investing in
ETFs that invest in various asset classes allows to diversify the overall portfolio which in turn reduces risks
and may increase the potential for returns.
Liquidity and Flexibility of
Trade
You do not need to be a professional to trade your units.
They can be purchased or sold in the same manner as equity stocks. Just like shares, ETFs are also traded on the
stock exchange. And this trade goes throughout market hours of the day, which means you get adequate liquidity
with ETFs compared to other funds. So, if you decide in the middle of the day that you want to sell your ETF
units to take profits or cut losses, you can do so without having to wait until the end of the day.
ETFs keep evolving
With ETFs soaring high in popularity because of the
various benefits they offer, different kinds of ETFs are being added on an ongoing basis. Asset Management
Companies (AMCs) are also responding to the rising demand of the new sectors by issuing new and innovative
ETFs.
This can also help you keep pace with the changing trend
in ETFs as per the sector demands. For instance, many ETFs are being introduced that focus on Environment,
Social, and Governance (ESG), allowing you to align your investments with sustainability and ethical
considerations while staying updated with the evolving ETF market.
Summary
In today’s age, you may want to start your investment
journey but don’t have a lot of resources or time to spend learning the nitty gritty of the financial market.
That’s where investing in ETFs comes in handy. With the benefits mentioned earlier, starting your investments
becomes easy. All you need to do is to have your financial goals in mind before investing.
Disclaimer
An investor education initiative.
Visit www.icicipruamc.com/note to know more about the
process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should
only deal with registered Mutual Funds, details of which can be verified on the SEBI website http://www.sebi.gov.in/intermediaries.html For any queries, complaints & grievance redressal, investors may reach out to
the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints
on https://scores.gov.in if they are unsatisfied with the resolutions given by AMCs. SCORES portal
facilitates you to lodge your complaint online with SEBI and subsequently view its status.
Mutual Fund investments are subject to market risks,
read all scheme related documents carefully.
