Are ETFs only for stocks?

Short Answer

ETFs are a financial instrument made to track an underlying asset and provide similar returns based on the performance of the underlying. ETFs are listed on stock exchanges which make it easier to buy and sell at desired prices. ETFs are not only limited to stocks but cover a wide range of investment avenues like Commodities, Bonds, etc.

Detailed Answer

What is an ETF?

An ETF or an Exchange Traded Fund or a Fund that tracks a particular asset such as an index, commodity, sector, etc. It is managed by a Fund manager who makes sure that the ETF is accurately tracking the underlying asset, which can consist of Stocks, Commodities, Index, etc. ETFs are listed on stock exchanges hence an individual can buy and sell an ETF on the Stock exchange at any point of time during the market hours i.e (9:15 to 3:30).

Are ETFs only for Stocks?

In short No! ETFs are not limited to stocks or Indices. They can be widely diversified to various asset classes like Debt, commodity, Bonds, etc. Let's look at some of the types of ETFs available in India.

  • Index ETF- Index ETFs are funds that track particular Indices, for example, Nifty50 Index, Nifty Mid Cap Index, etc. These are mainly equity-focused ETFs that track the real-time movement of such Indexes.
  • Commodity ETFs- Commodity ETFs include ETFs that track an underlying commodity for example Gold, Silver, Aluminium, etc. SBI GoldETF is an example of a Commodity ETF.
  • Debt ETF- Debt ETF does not contain any equity component in them. It is focused on Debt instruments like Government Securities, Bonds, etc. The underlying asset in these ETFs is Government Bonds, Treasury bills. These provide a fixed rate of return and the probability of capital gain is very small in these ETFs. Bharat Bond is an example of a Debt ETF.
  • International ETFs- International ETFs are another equity-related ETF that is common in India as it gives exposure to foreign markets. International ETFs usually track Foreign Indices such as NASDAQ 100 or S&P 500. The main advantage of buying an international ETF is, one does not need to maintain a separate brokerage account with any foreign broker to buy international shares. Motilal Oswal NASDAQ 100 ETF is an example of an International ETF listed on the NSE & BSE.

Conclusion

By now it should be clear that ETFs can be of various types tracking numerous asset classes. ETFs provide a range of options for the investor to choose from. The charges on ETFs is also low as there are no heavy overhead expenses like salaries, high transaction charges, etc. This is due to the fact that most ETFs are passively managed funds that track the underlying asset.

Tagged With: exchange traded fundscommoditybondsstock mareketETF
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Related FAQs

Why are ETF or Exchange Traded Funds not popular in India?

Exchange traded fund is a freely marketable security which tracks a particular index, commodity, bonds or combination of assets. they aren't popular as there is no additional tax incentives, not enough liquidity, under performs most of the time, lack of choices, lack of institutional interest, costs are low but not enough and lack of awareness.

How are ETFs different from Mutual Funds?

ETFs (Exchange Traded Funds) and Mutual Funds are similar investment vehicles that provide the investors various features. Both have their benefits and shortcomings. ETFs are a good option for passive investors who want to invest in a particular Index or Sector without much rebalancing. On the other hand, Mutual Funds are a better option for active investors who are more active with their investments. One can switch between funds according to their current strategies.

What are the types of ETFs available for investment?

Exchange-Traded Funds or ETFs are an investment tool that tracks particular securities like Equity, Commodity, Bonds, etc. ETFs are available for many categories from which one can choose from. These are listed on Stock Exchanges (NSE & BSE) hence there is ample liquidity and one can easily buy and sell these at their desired price during market hours. Some ETFs available for investment in Indian markets are Equity ETFs, Debt ETFs, etc.

How does an ETF work?

ETF is an investment instrument that tracks a group of securities from a particular asset class and performs according to it. It is managed by a Fund manager who makes sure that the ETF tracks the underlying asset accurately. ETFs are listed on the Stock Exchanges therefore one can buy & sell them within the market hours at their desired prices.

What is Mirae Asset FANG Plus ETF?

The Mirae Asset NYSE FANG Plus ETF Fund is a good option for Investors who want foreign exposure. The Equity allocation is very concentrated to just 10 stocks which makes this ETF very volatile and risky. This ETF consists of the top 10 stocks in their respective sectors mostly TECH, like Amazon, Netflix. Facebook, etc. Hence Investors with high-risk tolerance and a long time period should consider this fund.

Can you trade stocks using Investing.com?

Although you cannot buy and sell actual stocks using Investing.com, you can sign in and create a demo account where you can buy build portfolios, and trade stocks in a virtual manner. There will be no real money involved but you can practice and gain skills before you start with actual money.

What are the charges in an ETF?

ETFs are investment instruments that are listed on stock exchanges that offer investors to get exposure to a variety of asset classes. ETFs can be of different types tracking a particular asset class like Index, Commodity, and a particular sector. There are some changes in an ETF that include the Expense ratio and some other fixed charges charged by brokers, SEBI, etc.

What is the minimum amount I need to start stock trading in India?

A common question that a newbie trader wishes to ask, what is the minimum amount I need to start stock trading in India? A query whose answer we probably look for to initiate our stock investment journey.

How much money do I need to start Stock Trading in India?

Its all based on the share you wish to purchase. You can invest one rupee or two rupees in the stock market while there is no maximum cap on your investment.

Can I do stock trading in India without a broker?

To buy and sell stocks in the Indian stock market, you will need a demat and trading account. A stockbroker is necessary to trade stocks because the broker will provide the trading account through which you will place your trades.