Here’s why ETFs are becoming lucrative, safe investment options

Here’s why ETFs are becoming lucrative, safe investment options

When Dheeraj Patel, a 30-year-old human resource professional, ringed in 2018, one of his major goals in the New Year was to invest and generate surplus wealth to achieve his financial goals. He spoke with his colleagues and other investors to gain knowledge but to no avail.

Like Patel, if you’ve been looking to make investments and generate huge money, it is important to understand that it requires due diligence, patience and discipline. While making investments, the investor also has to keep focus on long-term and short-term financial goals.

In this backdrop, if you are focussing on real and safe returns on investment, one of the options could be ETFs.

The Exchange Traded Funds (ETFs), which came in Indian in 2001, are gaining prominence. ETF is a basket of stocks that reflects the composition of an Index, like S&P CNX Nifty or BSE Sensex.

“ETFs were created to combine the best characteristics of both stocks and mutual funds into a combined investment vehicle. The reasons for the popularity of ETFs are easy to understand. ETFs have lower trading expenses since the amount of companies’ shares being bought and sold are limited to only the instances when the index adds or removes a company,” said Radhika Gupta, Chief Executive Officer, Edelweiss Asset Management Limited (EAML), adding “this limits the trading costs. Plus, ETFs come in handy when the Investor wants to create a diversified portfolio.”

As per a Bloomberg Intelligence report, India has the world’s second-fastest growing ETF market, behind Japan, with assets more than doubling to $4 billion from $1.9 billion in the past three years.

NSEArticle1-Box

Also, ETFs protect long-term investors from inflows and outflows of short-term investors. This is because the fund does not incur extra transaction cost for buying/selling the index shares due to frequent subscriptions and redemptions.

The only way most people have any hope of creating real wealth is by investing in stocks and mutual funds. The benchmark Nifty index has returned approximately 28% in January 31, 2018; the traditional saving rates were at a decadal low of around 7%

ETFs allow authorized participants and large institutions to create new units and redeem outstanding units directly with the fund.

ETFs attract investors to build a portfolio or gain exposure to specific sectors. It can certainly help you achieving your financial goals. So, what’s your pick?