What are Equity ETFs?
Equity ETFs in India are passively managed funds that combine the simplicity of mutual funds and the high return potential of stock investment. ETFs for Indian stocks simply mirror a stock market index such as NIFTY and invest in the included securities in the same proportion. Equity ETFs in India invest in a basket of securities similar to the index to allow for higher diversification and return on investment. Similar to other types of ETFs, equity ETFs also trade on the stock exchanges and can be bought and sold anytime within the trading sessions.
Who Should Invest in Equity ETFs?
Equity ETFs in India are known to offer better returns based on their higher equity exposure. The investment in Equity ETFs is suitable for investors who have a long term investment horizon. As Equity ETFs in India are passively managed, they are an ideal investment instrument for investors who do not want to actively manage their investments.
Owing to the passive management, Equity ETFs come with a low expense ratio (annual maintenance charge levied by the fund house to finance the equity ETF expenses). This makes for a perfect investment avenue for investors who want to earn better returns at an affordable cost. However, before choosing the best equity ETF in India, it is vital to define your investment goals, capital amount and tenure. It will allow you to compare various types of Equity ETFs in India such as Sector ETFs, Market Cap ETFs, Dividend ETFs etc., to ensure you invest in the best equity ETF in India.
Benefits of Investing in Equity ETFs:
Equity ETFs in India have the potential to provide better returns based on their equity exposure. When you invest in the best equity ETF in India, you get the following benefits:
High Return Potential: Equity ETFs are known to offer better returns to investors than other market-linked instruments with a similar structure. The high return potential in equity ETFs is due to their high equity exposure where the pooled amount is invested in top quality stocks from the best stock market indices.
High-Trading Volume: Similar to other ETFs, an ETF for Indian stocks is also listed on various stock exchanges without any limitations on buying and selling. The simplicity in trading of equity ETFs in India allows investors to buy and sell at any time during the market hours. The heightened trading volume results in high liquidity for the investors.
Diversification: Equity ETFs in India mirror the performance of stock market indices by investing in the same stocks in the same proportion. The structure of ETFs for Indian stocks creates a basket of stocks and allows for utmost diversification. Equity ETFs ensure that the losses of certain included stocks are offset by the profits earned in the remaining stocks to create a healthy and diversified portfolio.
Low Cost: Equity ETFs are passively managed funds which do not demand that the investors actively monitor and manage their investments. Thus, the number of transactions to maintain the portfolio is less, resulting in a lower expense ratio and overall maintenance costs. Since the maintenance costs are low, equity ETFs leave more profits in the hands of the investors.
How to Invest in Equity ETFs?
Investing in equity ETFs in India is similar to investing in equities directly. As ETFs for Indian stocks are listed on the stock exchanges, you can directly buy them by following a simple process. However, you would need a Demat and a trading account to buy and sell Equity ETFs, which you can open hassle-free with 5Paisa. Here is the process of investing in Equity ETFs in India:
- Login to your 5paisa Account. If you do not have an account, you can register with 5paisa to create a new one in 3 easy steps by signing up here!
- Once you have logged in to your account, search for your preferred equity ETF or explore "All Mutual Funds" to find the best equity ETF in India.
- Select the best equity ETF in India according to your criteria.
- On the fund page, you can read all the additional information about the equity ETF, such as the underlying stock market index, holdings, asset allocation etc.
- Select the investment type - SIP or Lumpsum for the equity ETF you have chosen.
- Proceed with the payment. Once it’s done, you will receive a confirmation text and email from 5Paisa confirming that you have successfully purchased the equity ETF units.
Frequently Asked Questions
ETFs are of five types: Equity ETFs, Debt ETFs, Gold ETFs, Currency ETFs, Silver ETFs and Commodity ETFs.
Yes, ETFs can provide immense diversification and good profits based on the price appreciation of the underlying assets.
You can buy equity ETFs in India similar to the process of buying shares. Login to your 5Paisa account, search for the equity ETF you want to buy and place an order.
Equity Mutual funds are actively managed and come with a higher expense ratio than equity ETFs, which have a lower expense ratio.
Stocks are individual units that provide partial ownership of a specific company while equity ETFs are a basket of stocks of various companies created to trade as a single unit.
Both investment avenues have their advantages and disadvantages. However, investing directly in stocks requires extensive financial knowledge and active management against the straightforward process of passively investing in stocks through equity ETFs, which is a singular investment.