If you have been looking for good investment options to give you reasonable returns, ETFs (Exchange Traded Funds) can be an investment option you can look for. You might see about the growth and performance of ETFs when you take a glance at the financial newspapers every day. Have you ever wondered what they are? You have come to the right place, then. Here, we give you a brief idea of the following points:
- What are ETFs?
- Why are they called ETFs?
- What are their important features?
- Some tips to remember while investing in ETFs
What are ETFs?
ETF stands for Exchange Traded Funds. As the name suggests, these funds trade on a stock exchange. You can buy and sell these units throughout the day, just like how you trade with shares. In short, ETFs are a combination of mutual funds and direct stocks.
The price at which ETFs can be bought or sold is at real time NAV or Net Asset Value. The NAV of the units of an ETF scheme will be computed by dividing the net assets of the Scheme by the number of Units outstanding on the valuation date and shall be rounded off up to four decimals. INAV is a measure of the intraday net asset value (NAV) of an investment, which gives an updated measure of the value of the investment based on its assets less its liabilities. An investment's NAV is usually calculated at the end of the trading day, but the indicative NAV measure gives a more real-time view of this value. When you invest in these ETFs, your money is distributed throughout the stocks that are part of a particular index on a stock exchange. Some examples of these indices are BSE's (Bombay Stock Exchange) Sensex, NSE's (National Stock Exchange) Nifty, etc. The values of the stocks listed on stock exchanges keep changing throughout the day due to various factors. Since ETFs invest in units that are part of a stock exchange's index, their values keep changing throughout the day. ETFs can be various types, such as Equity, gold, Debt, bank etc.
Why are they called ETFs?
ETFs have been named thus because they invest in units that are traded on an exchange, just like shares and stocks.
What are the important features of ETFs?
Some important features that you should know about ETFs before investing in them are:
- The value of ETFs keeps changing throughout the day, as the price of the funds depends on the rise and fall of the underlying stock market index.
- You can buy and sell the ETFs throughout the day, just the way you trade with shares.
- The value at which the ETF is traded on the exchange is directly dependent on the net asset value of the underlying index the fund represents. All trading activities (buying and selling) happens on the real-time NAV of the ETF at the time of the trade.
- You can enjoy flexibility while investing in ETFs. You can get complete exposure to all stocks in a particular niche index of your choice. ETFs are known for their affordable costs, lower risks and transparent trading processes.
Some tips to remember while investing in ETFs
Are you new to ETFs but want to try investing in them? Here are some points you have to keep in mind.
- It is important for investors to invest in the right type of ETFs and aim to get optimal returns by carefully evaluating your goals, risk appetite and time horizon.
- Though ETFs have lesser total expense ratio than mutual funds, they are associated with certain risks. ETFs hold stocks that are part of an index in a stock exchange. So, they are governed by the fluctuations in the stock market.
We hope this article helped you understand clearly about ETFs to make a qualified decision while investing in them.
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 (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.
