A mutual fund possesses a collection of investments financed by all its shareholders. Thus, when an individual acquires shares in a mutual fund, they acquire a partial ownership stake in all the assets held by the fund. The fund's performance is contingent upon the performance of its combined assets. As these assets appreciate, the value of the fund's shares also rises. Conversely, if the assets depreciate, the value of the shares declines accordingly.
The issuance of mutual fund units is conducted by the fund companies themselves. In the case of open-ended mutual funds, new units or shares are issued whenever an investor wishes to invest. This stands in contrast to closed-ended funds, where there is a fixed number of units available. The quantity of units an investor can purchase is typically determined by the amount they invest, with initial investments often starting from Rs. 500
Both institutions and individuals have the opportunity to strategize and invest in mutual funds.
Mutual funds are typically issued directly by the mutual fund companies themselves, as well as through stock exchanges.
The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) serve as the regulatory authorities.
Mutual Funds (MFs) represent investments pooling together funds contributed by investors. These funds are then invested in a diversified portfolio of securities aligned with the common investment objectives of the investors. Each unit issued by the fund represents a proportionate share of every investor's contribution.
The value of these units, known as the Net Asset Value (NAV), fluctuates to reflect changes in the value of the fund's underlying portfolio.
Mutual fund schemes can be classified as open-ended or close-ended. Open-ended schemes allow investors the flexibility to purchase units from the fund and redeem them back to the fund at any time, without any fixed maturity period. Units can be bought and sold at NAV-linked prices, offering liquidity to investors.
Closed-ended funds have a fixed unit capital, and a specific number of units are issued during the initial offering. These units can be traded on the stock market, where they are listed for mandatory trading.
An ETF- Exchange Traded Funds represents a category of mutual fund scheme that is publicly listed and traded on the stock exchange, offering investors the ability to buy and sell units through the exchange, similar to individual stocks. The majority of ETFs follow a passive management strategy, although actively managed ETFs also exist.
Passive ETFs are structured to replicate the performance of various benchmarks, such as stock market indices like the NIFTY 50. This means that passive ETFs invest in the same constituents and in the same proportions as the underlying index they track. They may also mirror indices representing specific sectors, like NIFTY Pharma, or commodities such as gold, tracking the price of physical gold.
ETF- Exchange Traded Funds are issued by mutual fund companies.
To buy ETFs, first, open a Demat account with a registered broker to hold your ETF shares electronically and facilitate trades on stock exchanges. Then, research and select the appropriate ETF that matches your financial objectives and risk profile, considering factors like expense ratio and past performance. Finally, place an order through your trading account, utilizing various order types like market orders for instant execution or limit orders to stipulate desired buying or selling prices.
Both institutions and individuals have the opportunity to invest in ETF- Exchange Traded Funds.
ETFs are issued directly by mutual funds and are also traded on stock exchanges.
ETFs are regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
ETF- Exchange Traded Funds represent investment vehicles where funds are pooled collectively by investors to track an index, commodity, or a basket of assets.
Similar to index funds, ETF portfolios mirror the performance of the index they track. However, unlike index funds, ETF units are listed and traded in Demat form on stock exchanges. Their prices fluctuate continuously to reflect changes in the underlying index or commodity prices.
ETFs offer the diversification benefits of index funds along with the ability to buy or sell units at real-time prices, even in small quantities.
As ETFs are passively managed portfolios, their expense ratios are typically lower compared to traditional mutual fund schemes.
Is ETF investment tax-free in India?
No, EFT exchange traded funds are not tax-free in India. Investors are subject to taxes on dividends and capital gains generated from ETF investments.
Is investing in Exchange Traded Funds (ETFs) a wise decision?
Absolutely, investing in Exchange Traded Funds (ETFs) is a prudent choice. ETFs offer cost-effectiveness, versatility, and bolster portfolio diversification, mitigating risk effectively. Furthermore, compared to other passive investment options, ETFs demonstrate superior performance with lower tracking errors, making them an attractive investment avenue.
What sets mutual funds and Exchange Traded Funds (ETFs) apart?
ETFs boast low costs, tax efficiency, and passive investing flexibility, while mutual funds offer active management, suited for long-term investors. Opt for ETFs for cost-effectiveness or mutual funds for tailored management, aligning with your investment objectives and risk tolerance.
What determines the trading value of an ETF?
The trading value of an ETF is determined by the net asset value (NAV) of the underlying stocks it represents, reflecting in its ETF share price. Similar to a Mutual Fund, ETFs can be bought and sold in real-time at prices that fluctuate throughout the day. * Returns over 1 year are annualized.
Do ETFs pay dividends?
Yes, numerous ETFs distribute dividends based on the dividend payments received from the stocks held within the fund.