Exchange-Traded Funds
About
- An Exchange-Traded Fund (ETF) is a basket of marketable securities such as equities or bonds that tracks an underlying index such as Nifty, Sensex, etc.
- When one buys shares/units of an ETF, they are buying shares/units of a portfolio that tracks the yield and return of its underlying index.
- ETFs are in many ways similar to mutual funds; however, they are listed and traded on stock exchanges like a common stock.
- The traded price of an ETF changes throughout the day like any other stock, as it is bought and sold on the stock exchange.
Advantages of ETF
- With an ETF, one reaps the benefits of a diversified portfolio (like in mutual funds) while enjoying the liquidity of being traded on a stock exchange (like stocks).
- One of the primary uses of ETFs is to take exposure to a particular market or a segment of it.
- Eg: One can participate in the Indian banking sector by buying units of an ETF that tracks the banking sector index.
- ETFs typically have lower fees than mutual fund schemes, making them an attractive alternative for individual investors.