Exchange Traded Funds - The future of Mutual Funds ?

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Hello,

I owe a big thanks to all of you for giving an immense response to the blog. I have received several queries regarding Insurance (mostly Health Insurance) for which I have tried addressing each of them. 

I apologize, if I was unable to deliver the response due to time constraints. (I have my CA Final exams coming soon).

One Small request - Please leave your queries/ suggestions in comments box so that all readers can get insights about it. ( I have turned on Anonymous option for leaving comments 😂). 

Enjoy reading!

So, today I am going to write about an interesting investment instrument which is in queue to get popular and widely included in our portfolios (specially in India).

Any guesses?

Cool, that is ETF (Exchange Traded Funds).

What are Exchange Traded Funds?

An ETF is a fund that can be traded on an exchange like a stock, which means they can be bought and sold throughout the trading day (unlike mutual funds, which are priced at the end of the trading day).

Before understanding this more clearly, let us understand the logic behind the introduction of this funds in the financial world.

We all know about Mutual Funds, it is the pooled investment instrument wherein all investors pours in their money and the same is been invested by the Asset Management company in various stocks, debts, bonds (depending on the fund-2-fund) in return of some fees. Mutual funds are specially for those who wants to be part of stock market but have limited time and knowledge.

There is a concept of close ended mutual fund and open ended mutual fund, you can figure out the difference between the two by referring to the notes below:

So, from above difference, we found that there is some limitation in both open ended and close ended mutual fund.

• In open ended MF's, we can't buy sell or trade the funds on stock exchanges.
• And even though Close ended MF's traded on an exchange, they are not exchange-traded funds (ETFs).

ETF is legally an open-ended funds but it is special in the sense that it is listed on the stock exchanges just like close ended funds. 

ETFs give you a way to buy and sell a basket of assets without having to buy all the components individually, and they often have lower fees than other types of funds. ETFs tend to be more cost-effective and more liquid when compared to mutual funds.

Now, let us understand that how many types of ETF's are available across the financial world:-

Now, let's look at six common types of ETFs.

• Index Funds
• Equity Funds
• Fixed-Income Funds
• Currency Funds
• Commodity Funds
• Real Estate Funds
• Specialty Funds
• Etc.

Should we Invest in ETF's in India?

Yes, definitely. If you are pouring money into Mutual Funds, then you should definitely switch your funds to similar asset tracking ETF's which will in course, get you the benefit of cost effectiveness and high liquidity.

ETF's are the FUTURE of MUTUAL FUNDS in INDIA.

(I can officially give advices on Investments as I hold a certificate from SEBI for Investment Advisor - L1)

For further information on ETF's, you can visit NSE website to explore the list of ETF's listed and traded on exchanges.

Hope you all got a handful insights on ETF's.

Please let me know in the comments if you have some query regarding the discussion. 

Also, if you are interested to get more such blogs on topics related to Money and Finance, please let me know in the comments. 

Enjoy reading!

Signing off.....

Ayush Garg

FinDost - A simple way to understand money!

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