What is ETF in Stock Market
An ETF or exchange-traded fund is a basket of securities tracking an index. You get access to a wide array of asset classes while dealing with these funds.
So, knowing the basics is crucial for ETF investment.
Exchange-traded funds are ideal if you’re looking for maximum asset class exposure. Also, experienced investors with solid fundamental knowledge will find these funds excellent.
The following post will talk all about the essential details of ETFs, like their types, benefits, and investment tactics. Without further ado, let’s dive in!
ETF Meaning: A Brief Introduction
To understand the ETF meaning, you need to focus on the terms – exchange-traded and funds.
- Exchange – You can purchase 30 funds on the stock exchange like any other stock.
- Traded – As the funds are traded like standard stocks, they might experience price fluctuations all day long.
- Funds – These are a collection of thousands of bonds and stocks.
So, ETFs offer the diversity of mutual funds and the simplicity via which you may exchange equities. When you decide to invest in an ETF, you can access an asset bundle to trade during stock market hours. It diversifies your investment portfolio and helps you tackle risks.
Plus, investing in several securities is convenient while dealing with ETFs. As they are usually affordable, there isn’t a huge risk of financial losses. You can receive decent returns if you analyze the fund carefully and understand its potential.
Types of ETF
Before jumping into the world of exchange-traded funds, consider its various types. The types of ETF which help you understand which suits your investment strategy.
- Index ETF– These funds track a specific index.
- CommodityETF – They are used for tracking the price of a specific commodity like oil or gold.
- Sector and industry ETFs– These are designed to offer exposure to any industry, such as technology or healthcare.
- Fixed incomeETF – Funds under this type provide exposure to almost all types of bonds available for investment.
- Foreign market ETF– These funds will enable you to track markets outside India, like Japan or Hong Kong.
- Style ETF– They track a particular market capitalization focus or investment style like a small cap growth.
How to Invest In an ETF?
Understanding how to invest in ETF is simple, as there are straightforward steps to assist any type of investor. First, you must open two accounts to purchase and sell these funds. These include a Trading account and a Demat account.
You will need to open a Demat account with your selected broker for holding the exchange-traded funds. It helps you secure the shares in an electronic format.
Next, you have to open a Trading account which will work as an interface between your Demat account and bank account. When you buy any share using the Trading account, it will be credited to the Demat account. So, you must link the Demat and Trading account.
Further, to successfully open both accounts, you have to follow the KYC regulations. Provide valid address and identity proof documents along with your bank account statements.
After completing the process, you will get access to your Trading and Demat accounts. You can place investment orders online, call your broker or use the telephonic ordering system offered by the broker.
The Bottom Line
ETFs provide you with a lot of flexibility and simplicity as you can trade them throughout the day. They are tax efficient and can help you in portfolio management.
In addition, the fund house will passively manage an ETF to maintain ETF’s portfolio while index tracking. It enables you to analyze the fund’s performance.
