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What are ETFs?

By News Canvass | Nov 26, 2022

Stocks offer investors the opportunity to invest in stocks of companies that have the potential to see good growth. However, stocks as asset classes are mostly volatile and there are trial periods when investors can face extreme volatility. Stock markets tend to be volatile due to many factors that affect market sentiment and can lead to sharp price movements. It may be impossible for individual investors to be aware of all these factors.

These sudden and negative price movements can negatively affect your stock investing ex-perience. Without the necessary knowledge and experience, new investors can suffer huge losses. Trapped in a hurricane of market volatility caused by negative investment experiences, some of these investors will be traumatized for a lifetime and may never return to stocks and lose confidence in the asset class.

To mitigate this negative experience, using ETFs as a stepping stone to the stock market would be a wise approach. Most ETFs are index funds, so they hold the same securities and have the same weights as the stock exchange index. Because it repeats holding the index, it generates a return similar to the underlying index. E.g. The Nifty 50 Index ETF holds all Nifty 50 stocks in the same proportion as the index. As a result, the fund will reflect the performance of the Nifty 50 Index, similarly, the BSE 500 ETF will invest in 500 companies, and investors will be able to invest and participate in the BSE 500 ETF. The NAV for these schemes is increasing, Or it decreases as the index rises or falls.

Why ETFs?

ETFs are useful, convenient, and one of the cheapest ways for investors who have long-term goals and want to invest in stocks without taking too much risk. The supply of ETFs is less volatile than stocks. More importantly, index volatility during periods of high volatility is likely to be less dramatic than for direct investing. Investing in ETFs allows you to profit from the market without the added stress of stock selection or market timing. ETFs are also listed on the stock exchange and can be traded (buy or sell) through a demat account at any time during market hours.

Investing through ETFs allows investors to use stocks in a variety of ways, generate higher risk-adjusted returns, and eliminate all forms of emotional bias and stock-related risk, i.e. the risk of direct investing.

Indian investors have been enthusiastic about the ETF concept over the past year. The same is reflected in the number of folios for ETF equity plans. ETF issuance increased unprecedentedly, foil more than doubled from 19 million to 42.5 million last year, and AAUM also increased from 1.5 lakh crores to 3 crores.


The ETF universe itself has many offers. ETFs are based on market caps such as the Nifty ETF, the Sensex ETF, the Midcap ETF, the BSE 500 ETF, and more. ETFs are also based on specific sectors such as IT, banking, healthcare, etc. If an investor is optimistic about the IT sector and wants a lot of names in the IT sector, then they invest in IT. ETFs are available.


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