When it comes to learning about
investments, there is a plethora of information lying ahead which might take months to become an expert. But
ETFs allow you to start investing right from the beginning of your investment journey. ETFs offer various
features like Lower Costs, Diversification, Flexibility of trade, etc. Therefore, investing in ETFs is a great
option for everyone, especially for beginners. Let us understand how.
Some of the factors you should consider
before investing are: -
1. They replicate the performance of the Benchmark
Index
ETFs track the performance of the
underlying benchmark index, i.e., an ETF invests in the same stocks and in the same proportion as the index.
Thus, you can expect the ETF to aim to provide similar returns as that of the index depending on the tracking
error. (Tracking error is a divergence between the price behaviour of a position or a portfolio and the price
behaviour of a bench mark)
2. They have lower
expenses
ETFs are passively managed funds, i.e.,
they save up on the fund management and extra expenses which in turn reduces the expense ratio making it a
pocket friendly investment option. As a beginner you can start investing in ETFs with a price as low as the
price of one unit of an ETF.
3. They help diversify your
portfolio with a small investment amount.
You can start investing in ETFS
with an amount as low as the price of one unit of an ETF. Depending on the ETF selected, prices for 1 unit may start
as low as Rs. 100 and are based on real time NAV. Investing in ETFs allows you to invest in all the stocks that
comprise the underlying index of the ETF, thus decreasing the worry of deciding on individual stocks which might
seem like a daunting task as a beginner. When you buy one unit of an ETF, you get to invest in all the stocks that
comprise the benchmark index that the ETF tracks, unlike investing directly in stocks for which you would require a
large amount of money to purchase all the stocks that make up an index.
For instance, buying one unit of an S&P
BSE Sensex ETF, gives you a small piece of all the 30 stocks that S&P BSE Sensex index comprises.
There are various ETF schemes available
across various asset classes like Equity, Debt and Commodities that can help you diversify your overall
portfolio.
4. Flexibility of Trade
ETFs trade like a stock on the stock
exchange therefore they provide flexibility of trade, that is you can buy and sell the ETF units any time at the
real time NAV.
Thus, ETFs can be suitable for
beginners as ETFs are straightforward investment products that are easy to understand and access and have
several advantages that can align with the needs of an investor who has just started 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.
