All you need to know about ETF

Money doesn’t grow on trees and neither in your dormant savings bank account. To ensure that your money enjoys steady growth, investing in the right place and at the time is very crucial. There are many options out there in the market where one can invest. One such option is exchange traded funds, which are popularly known as ETFs. Here’s a brief overview to understand ETFs better.

What is an ETF?

Going the ETF way can be tricky sometimes and in order to come up with an investment regime, it is very important to understand what an ETF is. The concept of exchange-traded funds is similar to equity funds where the ETFs are bought and sold with the help of a registered broker that belongs to a recognized stock exchange. One of the biggest advantages of it is that they trade like stocks. However, units of its are only listed in the stock exchange and thus cannot be bought and sold like public equity funds. An investor can possess any number of equity funds as he/she pleases. Basically, these are funds that track indexes such as BSE Sensex, and CNX Nifty, among others. ETF investment must be done strategically as there are many types of it available such as Bond ETF, Currency ETF, Industry ETFs, Commodity ETFs, and inverse ETFs. Each of these has different specifications.

These are very profitable as they come with certain benefits. It provides investors the flexibility to trade. They are also great for portfolio diversification as well as risk management. Looking at the variety of sector, industry, style as well as the country categories, these are easier for investors to find easy exposure for a specific market.

What are Gold ETFs and how do they function?

As we are now aware of the different types of ETF, let us look at a particular type known as gold ETF. Investing in gold has been popular since ancient times and when it comes to ETF, investing in gold ETF can be profitable. Gold ETF is a subset of commodity ETF. The main aim of it is to track the domestic physical gold price. It gives investors exposure to the gold market. In the longer run, these funds are an excellent choice of investment for investors who are looking to beat the market inflation especially when it is volatile. These funds can be termed as passive investment instruments that are based on gold prices and investments in gold bullions. In India, gold is usually in the form of ornaments, which means a lot of gold goes to waste in the making of these ornaments. When one invests in gold funds, this wastage is avoided.

When you are investing in a gold ETF, you are basically purchasing gold in electronic form. You are trading gold just like you trade stocks, which means you can buy and sell gold in electronic form through a Demat account. Thus investing in it is extremely convenient as you receive the cash equivalent of gold instead of physical gold. As gold funds are based on direct gold pricing, there is complete transparency when it comes to the prices of the ETFs. Gold funds have a unique structure and thus these funds have very low expenses compared to other physical gold funds. To summarize, it will be right to say that Gold ETF can be considered a safe investment option for investors.

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