ETF - Exchange Traded Funds

Understanding How ETFs Work

ETFs function as shares traded on stock exchanges (like NSE or NASDAQ) throughout the day, offering real-time buying and selling just like individual stocks. The price of an ETF fluctuates based on the value of its underlying assets (stocks, bonds, etc.) and is driven by market supply and demand. 

These mutual funds are primarily managed passively, meaning they simply aim to match the performance of a specific market index, resulting in very low operating costs (expense ratios). Less common are actively managed ETFs, where a manager attempts to outperform the market, typically leading to higher fees.

The High - Performing ETFs 

Some of the high - performance ETFs with their best funds are listed below:

1. Gold ETFs

   Gold Exchange-Traded Funds (Gold ETFs) are financial instruments that represent ownership in physical gold, but are traded on major stock exchanges like company shares. They allow investors to gain exposure to gold prices without the hassle of buying, storing, or insuring physical gold, eliminating concerns about purity or liquidity.

   Fund Name	AUM	Return 3 Years	Return 5 Years	Return 10 Years	Minimum Investment	Return Since Launch
   Nippon India ETF Gold BeES	₹22,355.07 Crs	31.81%	17.7%	15.1%	₹10,000	13.54%
   ICICI Prudential Gold Exchange Traded Fund	₹8,134.79 Crs	32.06%	17.99%	15.1%	₹5,000	11.9%
   Kotak Gold ETF	₹7,842.26 Crs	31.95%	17.93%	15.19%	₹100	14.35%
   Tata Gold ETF FoF Regular - Growth	₹327.64 Crs	N/A	N/A	N/A	₹5,000	43.26%
   HDFC Gold ETF Fund of Fund Regular-Growth	₹4,536.91 Crs	31.66%	17.43%	15%	₹100	9.68%

2. Index ETFs

   Index Exchange-Traded Funds (Index ETFs) are investment funds designed to passively track the performance of a specific market index. Instead of having a manager actively pick stocks to beat the market, an Index ETF simply holds a basket of securities in the same proportion as its underlying benchmark.

   Fund Name	AUM	Return 3 Years	Return 5 Years	Return 10 Years	Minimum Investment	Return Since Launch
   SBI Nifty 50 ETF-IDCW	₹201,813.73 Crs	14.84%	17.55%	13.22%	₹5,000	12.42%
   UTI Nifty 50 Index Fund Regular Plan-Growth	₹23,731.28 Crs	14.43%	17%	12.95%	₹1,000	11.77%
   Nippon India ETF Nifty 50 BeES	₹48,923.13 Crs	14.86%	17.57%	13.16%	₹10,000	15.4%
   HDFC NIFTY 50 Index Fund Regular-Growth	₹20,589.72 Crs	14.44%	17.11%	12.74%	₹100	14.65%
   Mirae Asset BSE Sensex ETF - Growth	₹18.62 Crs	N/A	N/A	N/A	₹5,000	12.99%

3. Sector ETFs

   Sector Exchange-Traded Funds (Sector ETFs) are funds that focus their entire investment portfolio on companies within a single, specific industry or segment of the economy. They are essentially specialized Index ETFs.

   Fund Name	AUM	Return 3 Years	Return 5 Years	Return 10 Years	Minimum Investment	Return Since Launch
   Kotak Nifty Bank ETF-IDCW	₹5,351.92 Crs	13.83%	19.45%	12.67%	₹5,000	11.23%
   Motilal Oswal Nasdaq 100 FOF Regular - Growth	₹5,774.62 Crs	38.27%	22.38%	N/A	₹500	26.09%
   Nippon India ETF Nifty Midcap 150 - Growth	₹2,385.38 Crs	23%	27.84%	N/A	₹5,000	21.69%

4. Bond ETFs

   The "best" Bond ETFs in India focus on two major categories based on their underlying assets, which determine risk, safety, and maturity. The most popular and highly rated Debt ETFs in the Indian market fall under the Target Maturity and Government Securities (G-Sec) categories.

   Fund Name	AUM	Return 3 Years	Return 5 Years	Return 10 Years	Minimum Investment	Return Since Launch
   BHARAT Bond ETF - April 2033 - Growth	₹6,333.87 Crs	N/A	N/A	N/A	₹1,001	8.6%
   Motilal Oswal 5 Year G-Sec FoF Regular - Growth	₹48.21 Crs	8.23%	N/A	N/A	₹500	6.23%
   SBI Nifty 10 yr Benchmark G-Sec ETF-Growth	₹3,263.20 Crs	8.77%	5.23%	N/A	₹5,000	6.34%

Types of ETFs

Regardless of your investment goals, almost all investors may profit from ETFs, be it for income generation, price appreciation, or partly offsetting risk in your portfolio. You can choose to invest in these ETFs that are given below: 

1. Bond ETFs

   Bond ETFs provide investors with a steady stream of income. The performance of the underlying bonds affects their income distribution. Bond ETFs do not have a maturity date, unlike their underlying securities. They usually trade at a higher or lower price than the actual bond price. 

2. Inverse ETFs

   When the value of an underlying benchmark declines, an inverse exchange-traded fund is created by utilizing different derivatives to benefit from the decrease in the value of that benchmark. It is comparable to maintaining a variety of short positions.

3. Currency ETFs

   Currency ETFs allow investors to participate in currency market activities without having to buy a specific currency. Currency ETFs, which are pooled investment vehicles, monitor the performance of both local and foreign currencies. Currency ETFs may be used for several purposes. 

4. Index ETFs

   The most popular ETF product is index ETFs. Its goal is to follow a specific market index, such as the Sensex, Nifty, BSE 100, or Nifty 100. Index ETFs invest in a portfolio of companies that closely resemble the index that the ETF is attempting to follow.

5. Gold ETFs 

   Gold ETFs are physical gold-based commodities exchange-traded funds. By buying shares in this business, you may possess gold on paper without worrying about asset protection.

6. Liquid ETFs 

   These funds invest in a basket of short-term government securities like money market instruments with short maturities to reduce price risk and increase returns while maintaining liquidity.

Pros and Cons of ETFs

There are several benefits to investing in an ETF rather than mutual funds or corporate stock.

Why Should You Invest in ETFs? 

To minimize the bad experiences of the volatility of shares, a reasonable approach would be investing in ETFs as a stepping stone into the stock market. The significant reasons why you should invest in ETFs are:

1. ETFs Help You Diversify Your Portfolio

   An ETF investment owns many underlying assets instead of just one, as a stock does. If you want to diversify your portfolio, ETFs are a popular option; they contain various assets.

2. ETFs Provide Flexibility

   Unlike mutual funds, ETFs may be bought and sold on stock markets. These funds may be exchanged daily, like intraday trading. ETFs may be shorted and sold for a profit in a single day within market hours.

3. ETFs Offer Liquidity

   ETF owners benefit from liquidity as well as broad diversity in their mutual fund portfolio. There is no lock-in since they are open-ended funds providing you with the option of withdrawing your assets as needed.

4. ETFs Do Not Have a Lock-In-Period

   ETFs have no maturity time since they may be exchanged daily. This provides liquidity and gives you the freedom to sell your assets whenever you choose. Due to the lack of a holding period, ETFs are a good investment choice.

5. ETFs Are One-Time Transactions

   When you buy a mutual fund, you're purchasing a basket of equities made up of tiny shares spread over a variety of assets. However, you may buy an ETF in a single transaction, the same as owning a small portfolio.

6. ETFs Are Tax-Efficient

   Being treated as equity-oriented schemes, ETFs are taxed like most other equity-related investment plans.

Difference Between Mutual Funds and Exchange-Traded Funds

One of your most difficult decisions as an investor is choosing between a mutual fund and an exchange-traded fund (ETF). The following are the significant distinctions between mutual funds and exchange-traded funds.

How to Trade or Buy ETFs?

ETFs are comparable to mutual funds in many ways, but they trade like stocks. ETFs may help you get the benefits of diversification with a basket of assets while also enabling you to benefit from price fluctuations since they trade like stocks throughout the day. 

Purchasing ETFs is simple. ETFs are mutual funds that trade like stocks on a stock market. You can trade ETFs in 5 easy steps as follows:

• Choose the most appropriate online stock trading platform for you.
• Register for a Demat account and a trading account.
• Furnish personal information as well as documentation of identification. 
• Transfer/ deposit funds into your trading account
• Find the ETF you're looking for and place a purchase order. Keep track of your ETF performance regularly. 

Final Thoughts

Exchange-Traded Funds are highly effective investment tools that combine the mutual funds with the trading ease of stocks. They offer key advantages such as generally lower management fees, high liquidity due to their being traded on stock exchanges all day, and instant diversification. The main categories include Index ETFs, Sector ETFs, Gold ETFs, and Bond ETFs. Overall, ETFs are a transparent, flexible, and accessible choice for portfolio building, suitable for various investment goals.