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ETF - Easy TODO Fund ( Exchange Traded Fund)

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ETF - Easy TODO Fund ( Exchange Traded Fund)

Most of the time people find difficulty in investing as it need lot of effort, discipline, patience & time.

However alongwith all the  above comes the need for knowledge.

There is a list of factors to be ticked before investing by oneself in mutual funds, to know whether

-the fund is doing well ;

- whether the fund manager is smart and clever with his stock picks ;

- the past performance and track record of the fund & fund house etc..

If it is about stocks  then one has to analyse which stock is doing well, one has to check the quarterly results, profit & loss account, balance sheet, cash flow statement, and study the annual reports before investing in an individual stock, this type of investing  is called Active Investing.

 Actively  one needs to check these factors before one chooses the stock or fund that one wants to invest into. In the busy world that we live in,   many people don’t  find time to sit and go through these factors to invest. In the absence of ability to study in detail and do your homework, what is the option ?

Answer  : ETFs or Exchange Traded Funds

ETF it is an abbreviation of exchange traded funds also known as passive investing. It is a mirror of index.

What is a Stock market Index ?

Stock market Index, is an index that measures a stock market, or a subset of the stock market, that helps investors compare current price levels with past prices to calculate market performance. It is computed from the prices of selected stocks (typically a weighted arithmetic mean).

Two of the primary criteria of an index are that it is investable and transparent. The methods of its construction are specified. Investors can invest in a stock market index by buying an index fund, which are structured as either a mutual fund or an exchange-traded fund. ( Source : Wikipedia). Examples of popular Stock market indexes in India are  Sensex ( BSE 30 )  & Nifty ( NSE 50).

If we take example as NIFTY (Index) whichever stock is in nifty 50 will also be in NIFTY (index) in the same proportionate.  NIFTY BEES  is the ETF of NIFTY. As it is the same proportionate  the returns will  also will be similar to that of the index. There is a lot of calculation & criteria involved for a stock to get into an index. So whichever stock is in index is also the best one so one does not have to check the stock on an individual basis. Moreover Index has a combination of  many companies  where it is already diversified into many sectors so the person who is investing in an ETF doesn’t have to worry about diversification. Through SIP  a person can invest in ETF for long term to get great returns similar to the  index. The past performance of the NIFTY ETF is below

 

ETF

Returns

3Y

5Y

7Y

Nifty Bees

13.56%

15.23%

12.99%

UTI Nifty ETF

13.51%

15.34%

-

SBI ETF Nifty 50

13.53%

15.32%

-

Source by ValueResearchonline.com

So if you are finding it difficult to do your homework and prefer to generate wealth passively, then ETF should be your next stop.

By : Narayanan, Finsherpa Investment Services

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