ETFs
What are ETFs?
- Let us start from the beginning. ETF stands for Exchange Traded Fund. It sounds complicated, but it is actually very easy to understand. An ETF is like a basket. In this basket, there are many things inside. These things are shares of companies, bonds, gold, or other assets. So, when you buy an ETF, you are buying a small piece of that basket.
- Imagine you go to the market to buy fruits. You see a fruit basket. In this basket, you see apples, oranges, bananas, and grapes. If you buy the whole basket, you get a bit of every fruit. An ETF works in the same way. Instead of buying one company’s share, you get small pieces of many companies in one basket. This is why ETFs are so popular. They help you invest in many things at once.
- The word “Exchange” in Exchange Traded Fund means you can buy and sell it on the stock exchange. This is like buying and selling shares. You can buy an ETF during market hours and sell it whenever you want. This makes ETFs flexible and easy for everyone.
Why Do People Like ETFs?
- Many people love ETFs because they are simple, low-cost, and easy to use. When you buy shares directly, you have to choose which company to buy. You have to study the company’s profit, news, and future plans. This can be hard and takes a lot of time. But with an ETF, you do not have to do all that research. The ETF already has many companies in its basket. So, your money is spread out. This reduces your risk.
- People also like ETFs because they have low fees. Mutual funds can sometimes have high fees because a manager is actively buying and selling shares for you. In ETFs, the basket is often fixed. The fund manager does not change it too often. This makes the cost lower.
- Another reason people love ETFs is because you can buy or sell them any time the stock market is open. With some mutual funds, you have to wait till the end of the day to know the price. But ETFs have real-time prices that change every second, just like shares.
Business News
How Does an ETF Work?
- An ETF works in a simple way. First, a company or fund house creates an ETF. They decide what will go inside the basket. For example, an ETF may track the NIFTY 50. This means it will have shares of the top 50 companies in India. If you buy this ETF, you automatically own a piece of each company in the NIFTY 50.
- Let’s say you want to invest in gold. You do not want to buy physical gold because it can get stolen or you have to pay for storage. Instead, you can buy a gold ETF. This ETF holds gold, and its price goes up and down with the price of gold. So, you are investing in gold without actually keeping gold at home.
- Some ETFs track bonds. Bonds are like loans given to the government or companies. So, if you want to invest in debt but want easy buying and selling, you can choose a bond ETF.
Different Types of ETFs
There are many types of ETFs. Here are a few examples:
1. Index ETFs
These are the most common. They track an index like the NIFTY 50 or the SENSEX. When you buy an index ETF, you own small pieces of all the companies in that index.
2. Gold ETFs
These track the price of gold. Many people buy gold ETFs instead of physical gold because it is safe, and you do not have to worry about storage.
3. Sector ETFs
These focus on one sector like banking, technology, or healthcare. For example, a banking ETF may have shares of HDFC Bank, SBI, ICICI Bank, and others.
4. Bond ETFs
These invest in government or corporate bonds. They give you steady returns with less risk.
5. International ETFs
These invest in companies outside India. For example, you can buy an ETF that tracks the US stock market. This helps you diversify your money.
Each type of ETF has its own goal. You can choose one based on what you want — growth, safety, or diversification.
Who Should Invest in ETFs?
- ETFs are great for everyone, especially beginners. If you do not know much about the stock market but want to invest, ETFs are a safe start. They give you exposure to many companies at once. This means you do not have to worry if one company does badly. Others may do well and balance it out.
- ETFs are good for long-term goals like saving for your child’s education, your own retirement, or buying a house. They are also good for people who want low costs. Since ETFs are passive investments, you do not pay high fees like some mutual funds.
- Young people love ETFs because they are simple and can be bought with small amounts. Even students and first-time investors can start with just a few hundred rupees.
How to Buy an ETF?
- Buying an ETF is as easy as buying a share. You need a demat account and a trading account. You can open these with any stockbroker like Zerodha, Groww, Upstox, or Angel One. Once you have an account, search for the ETF you want to buy. For example, search for “NIFTY 50 ETF.”
- You will see the current price. You can buy it instantly at that price. If you want, you can wait for the price to drop and then buy. You can also sell your ETF any time when the market is open.
- One special thing is that you can buy even one unit of an ETF. This is good because you do not need a lot of money to start.
SIP in ETFs
- Did you know you can do SIP (Systematic Investment Plan) in ETFs too? Some platforms let you do this. SIP means you invest a small amount every month. This builds a habit of saving and investing. SIP in ETFs helps you average your cost. Sometimes you buy at a high price, sometimes low. This balances out over time.
Huge user growth in Q2 2025
How to Choose a Good ETF?
- Choosing an ETF is easy if you follow some simple steps. First, decide what you want to invest in. Do you want to track the NIFTY 50, gold, or a sector like banking? Once you know this, check which companies offer that ETF. For example, many companies may offer a NIFTY 50 ETF. Compare their expense ratios. A lower expense ratio is better because it means you pay less fee.
- Also, check the trading volume. This means how many people are buying and selling this ETF every day. If the volume is high, you can buy or sell easily.
- Finally, check if the ETF tracks its index correctly. Some ETFs do not follow the index perfectly. Look for ones that have good tracking.
Benefits of ETFs
ETFs have many benefits. Let’s understand them in simple words.
Diversification
When you buy an ETF, you automatically own many shares or assets. This spreads out your risk. If one company does not do well, others may do well.
Low Cost
ETFs usually have lower fees than mutual funds. This means more of your money stays invested.
Easy Buying and Selling
You can buy and sell ETFs anytime the stock market is open. This gives you flexibility.
Transparency
You can see exactly what is inside your ETF. Many ETFs share their holdings every day. This means you always know where your money is.
Good for Beginners
ETFs are simple. You do not need to study many companies. You just choose an ETF, buy it, and hold it.
Risks of ETFs
Every investment has some risk, and ETFs are no different. Let’s talk about a few risks.
Market Risk
If the market goes down, the value of your ETF will go down too. For example, if you have a NIFTY 50 ETF and the NIFTY falls, your ETF will also fall.
Tracking Error
Sometimes, an ETF may not track its index perfectly. This means you may not get the exact same return as the index.
Liquidity Risk
Some ETFs do not have many buyers and sellers. This can make it hard to sell your ETF quickly.
But remember, these risks are small if you choose a good ETF and stay invested for the long term.
How Long Should You Hold an ETF?
ETFs work best when you stay invested for the long term. Short-term ups and downs are normal. But over many years, your ETF can grow nicely. Many people keep their ETFs for 5 to 10 years or more. This helps your money benefit from compounding.
Taxes on ETFs
ETFs are taxed like shares. If you sell your ETF within one year, you pay short-term capital gains tax of 15% on your profit. If you hold your ETF for more than one year, you pay long-term capital gains tax. The first ₹1 lakh profit is tax-free. After that, you pay 10% tax.
Should You Have ETFs in Your Portfolio?
Yes! Many experts say ETFs are great for everyone. They give you diversification, safety, and growth. You can have ETFs along with mutual funds, stocks, or bonds. This makes your portfolio strong.
Tips for New Investors
Always do your homework before buying an ETF. Read about the index it tracks. Start small if you are unsure. Do not panic when the market goes down. Trust your plan. Stay invested. Watch your money grow.
- All Posts
- Become Partner
- Broker Review
- Crypto
- IPO
- Mutual Fund
- Recent News
- Recent Updates
- Stock Market
The Indian stock market is once again making headlines with an IPO that’s grabbing everyone’s attention. IPO Raised ₹599 Crore...
The Indian stock market is once again making headlines with an IPO that’s grabbing everyone’s attention. IPO Raised ₹599 Crore...
Bengaluru-based ecommerce platform Meesho has confidentially filed for a ₹4,250 crore Initial Public Offering (IPO) with the Securities and Exchange...
From SEBI’s Final Clearance to Damani’s ₹9,300 Cr Windfall — What Investors Should Know India’s most-awaited IPO this year may...
Meta Infotech IPO Opens on 4th July BSE SME IPO opens to public; price band at ₹153–₹161; subscription closes July...
📍 New Delhi | 🗓️ July 4, 2025 | 📰 Source: PTI Brigade Hotel Ventures Ltd, a leading hospitality company...
By Popular Top Share Brokers
Motilal Oswal
30 days brokerage free trading
Free – Personal Trading Advisor
AngelOne
Free Equity Delivery
Flat ₹20 Per Trade in F&O
Profit mart
Free Equity Delivery
Flat ₹20 Per Trade in F&O
ProStocks
Unlimited @ ₹899/month
Rs 0 Demat AMC
Upstox
FREE Account Opening
Flat ₹20 Per Trade
Paytm Money
Pay ₹0 brokerage for first 10 days
Flat ₹20 Per Trade
Fyers
Free Eq Delivery Trades
Flat ₹20 Per Trade in F&O