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ETF: Everything You Need to Know

Author: Shashank Pawar
by Shashank Pawar
Posted: Feb 11, 2019

Heard a little about ETF from everywhere? Sounds exciting enough to make it a part of your investment portfolio? Before you invest in ETFs, let us tell you all about ETF to help you plan better.

What is ETF?

ETF or Exchange Traded Funds are similar to stocks. An ETF can be defined as an investment fund that can be traded on stock exchanges. It holds assets like commodities, stocks, and bonds. The trade value of an ETF depends on the net-asset-value of the stocks it represents. It is similar to a mutual fund, the only difference being you can sell and buy it in real-life at prices that keep changing throughout the day.

ETFs have opened a lot of opportunities for people who are looking to invest globally. Investors get exposed to different stock markets in specific sectors on a real-time basis in countries across the world.

An ETF is nothing but marketable security, which keeps a track on a commodity, stock index, basket of assets, or bonds. An ETF’s share price keeps changing as the share is bought and sold throughout the day. Typically, the largest ETFs will have a higher average volume daily and lower fees compared to mutual funds. These make ETFs an attractive investment option for new investors.

Most ETFs are into stock indexes. However, you will also find ETFs investing in currencies, bonds, commodity markets, and other assets. Some ETFs even come with options that allow you to use hedging, speculation, or income strategies.

How does ETF Work?

ETFs are becoming increasingly popular among investors today. How do they work? Here’s a lowdown on the same.

When you buy an ETF, you are investing in the performance of the underlying security, and these usually represent a specific sector or index.

To invest in ETF, there are a few things that you need to know. You cannot buy or sell an ETF directly. Each unit of an ETF is listed in the stock exchange, and so it is not possible for you to buy or sell an ETF like equity funds. You can buy and sell an ETF only via a registered stockbroker from a recognized stock exchange. You can buy as many units as you want—there is no restriction from the stock exchange.

You can also invest in ETF through an online trade platform, which should also be registered with the stock exchange.

Benefits of Investing in ETF

There are several advantages associated with investing in ETFs. The reasons why ETF is becoming popular are:

  • Diversification: With ETF you are exposed to a varied range of securities just like an index that you can trade like a stock. You can spread the total investment risk and reduce the risk associated with a specific stock.
  • Convenience: Selling and buying ETF shares are easy. You can simply take a look at the market prices on the trading platform and take your investment decisions. This makes the entire process transparent and also makes the process easier
  • Lower Fees: You can trade ETF at much lower costs compared to other investment instruments. You can invest in sector-based ETF with even with small capital investment
  • Tax Benefits: Dividends you earn from ETF shares are tax-exempted, if not sold within the first 12 months.
  • Gold ETF

    Gold ETFs are nothing but mutual fund schemes that are open-ended. The investor money is invested in standard 99.5 percent pure gold bullion. When you invest in gold ETF, gold of the same value that you invest is used to buy gold and added to the fund. Happy investing!

    If you are someone, who prefers investing in gold, you can consider investing in gold ETFs. With a gold ETF, you can invest in gold online. You get all the benefits of ETF in general, and you don’t have to worry about trading physical gold bars and coins.

    About the Author

    Here's a little bit about myself. I've done a Masters in Economics and teach the subject to high school students. I am 32 years old and married to an investment advisor. A Dhoni fan who loves to play football! I am a sports enthusiast and a firm beli

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    Author: Shashank Pawar

    Shashank Pawar

    India

    Member since: Dec 24, 2018
    Published articles: 38

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