What are the types of ETFs available for investment?

Short Answer

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.

Detailed Answer

What are ETFs?

An ETF (Exchange-Traded Fund) is an investment instrument that provides a broad range of investment options under it. ETFs are managed by a Fund manager who makes sure that the Fund tracks the underlying asset accurately. ETFs are listed on the Stock Exchanges hence, are called Exchange-traded funds.

Types of ETFs

ETFs are not restricted to one asset class like Equity or Equity indices. ETFs are very flexible and can track a variety of assets like Gold, Bonds, Foreign Indices, etc.

Some types of ETFs available for Investment are

1. Equity ETFs

Equity ETFs are Funds that have Equity shares as the underlying asset. For example, Nifty Midcap 100 ETF has the top 100 Mid-cap companies of the Nifty. Similarly, Equity ETFs are associated with a particular sector and track the performance of the Equity Shares present in that particular sector. Example HDFC Nifty Midcap 150 ETF, Nippon India JuniorBees ETF are some examples of Equity ETFs.

2. Index ETF

Index ETFs are similar to Equity ETFs but instead, they track the performance of an Index. Index ETFs include the Nifty50 Index or the S&P 500 Index which tracks the overall index consisting of a group of Stocks. Index ETFs are mostly passively managed funds as there is not much re-balancing to do within them. Nippon India Nifty50 ETF, HDFC Nifty50 ETF are some options of Index ETFs.

3. Commodity ETF

As the name suggests Commodity ETFs are ETFs that have a physical commodity as their underlying. Commodity ETFs let investors take exposure in commodities like Gold, Silver, Lead, etc which are hard to buy and store in physical form. SBI Gold ETF & ICICI Pru Gold ETF are some examples of commodity ETF in the Indian markets. These are Gold ETFs that allow investors to get the same return of Gold without going through the hassle of buying and storing the Physical metal.

4. Debt ETFs

Debt EFTs are those types of ETFs that have Debt securities as the underlying. Debt ETFs generally are the safest and offer the least rate of return among the other types of ETFs. Debt ETFs give the investor a diversified exposure in various kinds of Debt instruments so the overall risk is distributed among many securities. Edelweiss Bharat Bond is one of the most common debt ETFs in the Indian Stock exchanges which offer a stable yield of 4.5 to 7% annually. Debt ETFs generally have the lowest expense ratio as these ETFs are passively managed.

Conclusion

These were some of the types of ETF which are listed on the Indian Stock Exchanges. ETFs are a good option for diversifying your wealth as there are many options available.

One should consider a mixture of Equity, Commodity & Debt ETFs in their portfolio so that the overall risk is mitigated. ETFs are also a good option for passive investors as regular monitoring and re-balancing are not necessary.

Tagged With: Exchange Traded FundsStock MarketsIndexDebt securitiescommodities
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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.

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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.

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